Logitech and e-sports players (Selling shovels to miners)For those of you who had not noticed, e-sports is the next big phenomenon for young people. Ask your kids or grand-kids. E-sports is basically playing computer games on-line against other players or teams of players.
Watching E-Sports
It's not just the number of people playing of the games which are exploding, it's also the number of viewers watching the game. E-sports has become a big-time spectator sport.
To illustrate: Over 40 million players participated in the Fortnite World Cup Championship, the final of which was held in Arthur Ashe Stadium New York between July 26th and 28th 2019. The stadium itself, which seats 19'000 was fully sold out. A further 2.3 million viewers watched the finals live on Twitch and YouTube. The prize money was $30 million with the top player taking home over $3 million. The finals of the same game in September 2018 attracted 713 thousand viewers.
Perhaps the number of viewers seems small-beer compared the the Superbowl (98 million viewers) or the FIFA Football World-cup final (1.1 billion live viewrs), but the point is that the number of players and viewers is growing fast. In the Fortnite finals example above, the number of viewers trebled in 9 months. By 2020, Activate suggests that 70 million people will watch a single e-sports final, which is higher than the viewership for U.S. professional baseball, soccer, and hockey finals. By that time, consumers will watch 3 billion hours of esports, which accounts for 10 percent of all sports viewing.
The top e-sports dedicated websites for watching e-sports are Twitch.tv (owned by Amazon in English) and Douyu.com (40% owned by Tencent in Chinese). The Alexa rankings are: Twitch 38th most visited with 988 million visits per month and DouYu 385th most visited with 112 million visitors a month. Needless to say, YouTube is also extremely popular for e-sports although it's obviously not dedicated to the topic.
Playing E-Sports
According to Statista, the number of regular players of e-sports is rising by around 15% to 20% a year (201 million enthusiasts in 2019), and this rate of growth is forecast to continue. The following dynamics are fueling the rise in players:
Faster internet connection speeds: It is generally thought that you need a speed of at least 3Mbps down and 1Mbps up to play a fast moving game like Fortnite. Nearly half the people on the planet have access to this kind of speed.
Popular websites where players can broadcast their games or watch others (YouTube, Twitch and DouYu).
Cloud-Gaming: cloud gaming is the next big change in the gaming industry and will have a significant impact on digital games. Cloud gaming takes away an important hurdle in gaming—that of hardware requirements. Instead of storing a game on a disk or a hard disk, it is located in a computer center — the so-called cloud — and can be streamed via the internet from any location and to any end device. Players no longer need an upgraded PC, but only a stable internet connection. This does away with need to own the latest PC equipment and cards. You can play directly on a state-of-the art PC in the cloud. Effectively more devices including smart-phones and iPads, as well as older PCs will be able to play previously unavailable games. You don’t waste time downloading or updating games. Just choose the game you want, press ‘Play’, and get your very own gaming machine in seconds.
Here's a comment from the viewer comments section of a live game on Twitch: "My mummy and daddy don't understand why I pay to watch you playing Fortnite. But you are my hero and I will love you forever"
I think that comment just about sums it up. It's like the kid's adoration of football stars when I was growing up. Universities and schools are offering scholarships to talented e-sports players. It seems much easier for a kid to become and e-sports star than a football star. Unlike football, anyone could get there from their bedroom. There's no age limit.
Selling shovels to gold-miners
Irrespective of what game you play, you need excellent peripherals: Keyboard, mouse, speakers, cameras, headphones and microphone. Logitech is a major manufacturer of such equipment. They are a multi-brand company designing products "that bring people together through music, gaming, video and computing".
In the fiscal year ending 31st March 2019 Logitech grew its total sales by 9%. Pointing device sales grew 4%, Keyboard sales by 8%, webcam sales by 19%, Tablet accessories by 42%, and gaming accessories by 32%. The net effect of this growth was a rise of over 20% in Earnings Per Share (EPS). Non-GAAP EPS grew 26 percent to $2.01, compared to $1.60 a year ago.
In the annual report, Logitech confirmed its Fiscal Year 2020 outlook of mid to high single-digit sales growth in constant currency and $375 million to $385 million in non-GAAP operating income. That's a 7% tom 9% increase on 2019.
In July Logitech published its Q1 2020 results. These show sales increasing 9% yoy and Q1 non-GAAP EPS grew 15 percent to $0.39, compared to $0.34 in the same quarter a year ago. Conclusion: Logitech are ahead of their growth plan. Logitech will publish its Q2 2020 results in the third week of October 2019.
Analysts' consensus is that the company will have EPS of $2.36 in the current year. Based on the latest share price (6/9/2019) of CHF 40.53 (USD 41.00), the current year price earnings ratio is around 17X which seems good value for a company growing so steadily.
Now lets look at the trend. The moving averages are all trending up giving Logitech good momentum to keep rising.
As consequence of all of the above, I am adding Logitech to my buy list.
Long