Turtle Beach Sets Q4 Guidance To 'Easy Difficulty': The Sell-Side Reacts

Turtle Beach Corp. HEAR conservatively raised its fourth-quarter guidance Tuesday for a projection of 18-percent year-over-year revenue growth.

The Analysts

• D.A. Davidson analyst Tom Forte reiterated a Buy rating on Turtle Beach and lowered the price target from $38 to $30.
• Lake Street Capital Markets analyst Mark Argento reiterated a Buy rating and $40 price target.
• Wedbush analyst Michael Pachter maintained an Outperform rating and lowered the price target from $42 to $30.

Battle Royale

The popularity of battle royale gaming has supplemented the overwhelming growth in the sector, said Lake Street's Argento.

“We expect 'Call of Duty: Black Ops 4' and 'Red Dead Redemption 2' to drive further headset demand during the holiday season." the analyst said. 

The sector continues to expand and a "new normal" could exist, Argento said. 

New products and increasing usage rates will continue to drive sales, as headsets are essential to any battle royale game experience, according to Lake Street. 

Revenue Growth 

Turtle Beach has recorded 11 revenue wins in the past 14 quarters, according to company data. Third-quarter revenue amounted to $74.4 million, an increase of 107 percent year-over-year. Management issued fourth-quarter estimates as an increase of 18 percent.

The 18-percent revenue growth suggested by Turtle Beach's Q4 guidance is based on the company's forecasting method, which looks at growth in the company's core market plus the new installed base, said D.A. Davidson's Forte. 

"Since the core market is larger in the fourth quarter, as it is typically roughly 50 percent of annual sales, the impact of new users has a smaller effect on the year-over-year growth rates," then analyst said. 

“Additionally, the company has some standard channel fill as it ramps to the heavier fourth quarter, as well as some additional heightened fill to prepare for multiple new game launches in October.”

Holiday Shopping

The building of a substantial inventory in anticipation for holiday shopping should fulfill the demand driven by several new titles, said Wedbush's Pachter. 

The company should experience an influx of product upgrades from loyal customers, the analyst said. 

“We think Turtle Beach gained market share primarily with new gamers and gamers new to headsets, who likely purchased an entry-level chat headset ($19.99) or one tier up ($39.99)."

The massive draw of "Fortnite" in recent months likely mean ASPs declined while volumes increased, Pachter said. 

"That said, we expect these new headset owners to upgrade more quickly than the average gamer would replace, and therefore think 2019 revenues will remain elevated.”

Price Action

Turtle Beach shares were down 13.85 percent at $18.70 at the time of publication Wednesday. 

Related Links:

Wedbush: Turtle Beach Continues To Benefit From Rise Of Battle Royale Gaming

Turtle Beach Is Targeting Market Share Expansion, Says Bullish Wedbush

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