Turtle Beach (HEAR): Fun In The Sun Is Over

[Total: 0    Average: 0/5]
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Reviewer’s snubs, declining market share and dicey technicals may soon kick sand in Turtle Beach’s face.

We believe Turtle Beach (HEAR) has basked long enough in its 150% run-up over three days and is now changing course.

Exceeding Price Target

On May 9, the gaming headset company reported improved revenue of $40.88 million, while it raised guidance. The improvements were primarily credited to the rising popularity of battle royale game “Fortnite,” released in September 2017 for Microsoft Windows, macOS, PlayStation 4 and Xbox One, then for Apple’s iOS last month.

However, the company will again lose money next quarter with net losses expected to be $-0.5 per share.

Looming losses may have contributed to Wedbush Securities analyst Alicia Reese curbing her enthusiasm. The analyst (who has a success rate of 0% and an average -41.6% return) placed Turtle Beach’s 12-month price target at $12.50… meaning the stock has to scream downward by about 17% to hit the target.

Short Squeeze Ending

Meanwhile, we can see that a short squeeze has been at work as volume spiked more than 700% from May 9 to May 10 as shorts began covering.

(Source: Yahoo)

(Source: Yahoo)

But now things are leveling off, suggesting the squeeze has come to an end.

Overbought Territory

The stock’s relative strength index, or RSI, is very high at 85 … well above the critical level of 70.

This 85 indicates the stock has marched deeply into overbought territory, where the price may not be sustainable.

Growing rivalry also may have the potential over the long term to knock down the stock …

Pro Reviews, Market Share Setback

In review after review, rivals Kingston HyperX,  SteelSeries, Logitech and Sennheiser were named among the top products, while Turtle Beach was ignored.

Turtle Beach products did not make the cut among headsets recently rated by Digital Trends, Wiki.ezvid.com, BestAdvisor, IGN and, perhaps most significantly, PC Gamer.

At or near the top of most lists stands HyperX, a product of Kingston Technology of Fountain Valley, California, about 90 miles north of Turtle Beach’s Sand Diego headquarters. The private company expanded from gaming memory manufacturing into gaming headsets in 2014. Kingston began shipping officially licensed HyperX headsets for Xbox One in 2016 and is the gaming headset partner of the Philadelphia 76ers and Dallas Mavericks.

SteelSeries headsets also came out near the top on most lists. SteelSeries recently announced a partnership with PlayerUnknown’s Battlegrounds. Formed in 2001 to meet the needs of hardcore gamers, the company has offices in Chicago, Denmark and Taiwan.

Turtle Beach launched its first gaming headset in 2005 and states it is the leader in console gaming headsets. The company is a Microsoft-licensed partner, with products for consoles such as the Xbox One X.

Showing the impact of this competitive field, the NPD Group’s sales tracking data shows Turtle Beach’s dollar share of the market dropped to 42.1% in 2017 from 46% in 2014.

So maybe it isn’t so surprising that Turtle Beach did not make the following A-lists:

*PC Gamer. The 2018 review released this month by PC Gamer, “The Best Wireless Gaming Headset,” excluded Turtle Beach. Likewise, its May 6 review “The Best Gaming Headset,” the reviewers listed Kingston HyperX Cloud Alpha in first place, and Steelseries’ Arctis Pro GameDAC in second place. Turtle Beach was not among the other four mentioned headsets.

*IGN. IGN’s recent best headset list also failed to mention Turtle Beach:

(Source: IGN)

*TechRadar. In TechRadar’s review of 15 best headsets, Turtle Beach barely made the cut as number 12. HyperX and SteelSeries led with the top two reviews (link ).

*BestAdvisor. When BestAdvisor’s latest list of top 5 headsets came out, Turtle Beach had missed out again:

(Source: BestAdvisor)

*Wiki.ezvid. Turtle Beach also missed out on Wiki.ezvid.com’s editorial review of top headsets, which called the SteelSeries Arctis 7 “one of the finest headsets on the market.”

Wired: “Not The Best;” Painfully Honest Tech: Just “OK”

Just as disappointingly, top gaming publication Wired commented that Turtle Beach’s recently released Stealth 700 headsets are “not the best we’ve gamed with,” and the audio quality “won’t win any awards.”

(Source: Wired, click for full review)

Wired reviewer Jeffrey Van Camp wrote:

“To put the Stealth 700 headsets through their paces, I’ve played a lot of Tom Clancy’s The Division on Xbox One and Fortnite on PS4. The audio quality, while adequate, won’t win any awards. To my ears, the Stealth 700s were precise enough to pick up shots in the distance, or a rat running past me in the post-apocalyptic streets of New York. That said, I sometimes wished for a little finer clarity, and other times for a deeper oomph to the bass.”

Meanwhile, Painfully Honest Tech noted Turtle Beach Stealth 600 sounded “OK,” and otherwise dished the headset in his review which has been viewed 107,000 times on YouTube:

(Source: YouTube)

“These are OK. I don’t know that they’re $99 OK.  If you think about what’s in the $99 price range for wireless headphones.  Wireless headphones, you’ve got the gold wireless, you’ve got some other things out there,” said the reviewer, Jason, at 8 minutes, 23 seconds on the video.

“But $99 also gets you the Hyper X Cloud 2. In fact, usually they’re less than $99,” he added. “And for my money the Hyper X Cloud 2 is still the best headset that you can get.”

Disruptive Competition

Meanwhile, a significant threat is looming just ahead for Turtle Beach … Virtual reality, already coming to life through Sony PlayStation’s virtual reality bundle:

(Source: PlayStation)

The Sony PlayStation VR won the top editors’ choice spot by PCMag, released May 11.

Other VR winners were HTC Vive, Oculus Go, Oculus Rift, and Samsung Gear VR (2017).

Turtle Beach notes emerging technologies and alternate platforms, “such as mobile devices and virtual reality devices, could make the consoles for which our headsets are designed less attractive, or in time, obsolete.”

The company warns that future transitions in console platforms could hurt its headset business.

“Sony and Microsoft have announced hardware upgrades to the current console generations with the PS®4 Pro and Xbox One X, respectively. In addition, competing technologies such as tablet-based gaming and virtual reality may result in further disruption to the overall console gaming market.”

Conclusion

While not a bad company, Turtle Beach is overheated and we believe it has reached an unsustainable level. TheStreetSweeper expects this stock to retreat to around $11 per share short-term.

* Important Disclosure: The owners of TheStreetSweeper hold a short position in HEAR and stand to profit on any future declines in the stock price.

* Editor’s Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected]

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