2020: A Transformative Year for Razer Inc.

Without a doubt, 2020 has been a landmark year for Razer Inc. (HKG:1337). Despite the global market uncertainty caused by the Covid-19 pandemic, Razer crossed the US$1.0 billion revenue milestone and turned profitable on a General Accepted Accounting Principles (GAAP) basis, ahead of all expectations. 

In Co-Founder and CEO, Min-Liang Tan’s words, “this performance reflects Razer’s dominant brand position, compelling offerings across our ecosystem of hardware, software and services, and strong execution.” 

In this article, we will go through key highlights of its financial year (FY) 2020 earnings that could be of interest to investors. 

# 1: Record high revenue and turns profitable

Razer recorded a record high revenue in FY2020 driven by robust demand, as well as market share gains for its Hardware business and continued exponential growth of its Services segment. 

The group’s revenue has more than doubled since its IPO, rising from US$517.9 million in FY2017 to US$1,214.6 million in FY2020, representing a compounded annual growth rate (CAGR) of 32.7% over the past 4 years.  

(Source: 2020 earnings presentation)

Furthermore, Razer was able to close its first profitable year since its IPO, marking an inflection point for the business. The rise to profitability can be traced to Razer’s services segment which boasts a fatter 43.8% gross margin, compared to its overall business gross margin of 22.3%.

For context, the services segment accounted for around 10.6% of Razer’s revenue but contributed over a fifth of its gross profits. As demand for its services grows, we could see more dollars drop to the company’s bottom line.

(Source: 2020 earnings presentation)

# 2: Hardware revenue surpasses US$ 1.0 billion

Razer continues to be a global market leader in gaming peripherals and premium gaming laptops, as it maintains its dominant position across the US, Europe, Asia Pacific and China. Revenue from its Hardware business surged 51.8% year on year to US$1,083.7 million in FY2020 as the world’s population stayed at home, and many turned to online gaming, eSports and live streaming for entertainment. 

(Source: 2020 earnings presentation)

# 3: Razer gaming user base swells to 123 million

Razer’s slate of gaming platforms, including Synapse (an Internet of Things platform), Chroma RGB (universal RGB lighting) and Cortex (game booster), saw an upsurge in demand as attention shifted online. Monthly active users (MAUs) across its platforms have more than tripled since 2017. Indeed, the group added 43 million users in 2020 alone, more than its entire user base in 2017. 

(Source: 2020 earnings presentation)

# 4: Services revenue surpasses US$100.0 million

Razer’s services revenue has shown phenomenal growth, increasing by 10x since its IPO, from US$10.6 million in FY2017 to US$128.4 million in FY2020. The group monetises its large user base through two services, namely Razer Gold and Razer Fintech.

The first service, Razor Gold, is a unified gaming payment system with over 34,000 digital entertainment titles for in-app purchases and exclusive content. The game payment service has been well-received, gaining more than 26 million registered users by the end of 2020.

The second service, Razer Fintech, represents the company’s financial technology arm, which includes digital payments. As it stands, the group’s fintech payment network serves over 50,000 merchants and boasts more than 1 million acceptance points, and is considered one of the leading offline to online (O2O) digital payment networks for Southeast Asia.

Razer Fintech benefitted from surges in online shopping and digital entertainment consumption activities due to the lockdown situation arising from the Covid-19 pandemic. 

(Source: 2020 earnings presentation)

# 5: Positive operating and free cash flow 

Razer’s has shown efficient working capital management with its negative cash conversion cycle, which means the group gets paid by its customers before it has to pay its suppliers, creating a cash buffer that it can use to sustain its operations. 
As a result of this cash discipline, Razer was able to generate a positive operating cash flow of US$152.9 million and a free cash flow of US$138.1 million in FY2020. 

(Source: 2020 earnings presentation)

#6: A cash war chest with over US$600.0 million

Razer’s cash and bank balances have enlarged to US$621.8 million at the end of 2020 with no debt. This pile of cash provides sizable financial firepower for the company to invest in its future. 

The group has guided that it will use its cash reserves in the following manner:

  • Investments in R&D for new Hardware and development of new Services
  • Continued share buybacks
  • Investment or M&A activities 

In fact, Razer had in February 2021, announced its intention to acquire console accessories brand Controller Gear. The acquisition of Controller Gear, which specialises in creating licensed peripherals and merchandise for popular console brands including Xbox, PlayStation and Nintendo, will strengthen Razer’s position in the fast-growing premium console market as the entire gaming market is forecast to cross its first US$200 billion years in 2023. 

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