Does Logitech’s EPS Beat Signal the Rebound of Video Gaming?

Computer gaming and accessories manufacturer Logitech International S.A. NASDAQ: LOGI saw strength in its video gaming segment in Q1 2024. The computer and technology sector company has narrowed its focus to making gaming and streaming products like webcams, headsets, mice, and keyboards. It also seeks to benefit from the emerging artificial intelligence (AI) ecosystem.

The company's main competitors include Microsoft Co. NASDAQ: MSFT, Apple Inc. NASDAQ: AAPL, Corsair Gaming Inc. NASDAQ: CRSR and Turtle Beach Co. NASDAQ: HEAR.

5 External Trends to Impact Business

Logitech CEO Hanneke Faber believes five major external trends will affect their business:

1. The elastic office (splitting time between working at the office, at home, and on the go)  continues to gain popularity and Faber believes the need for multiple workspaces drives the need for more video collaboration, which means more webcams, keyboards, mice and accessories.
2. Video gaming has gone mainstream, and Logitech thrives on providing more tools to a wider community of games.
3. AI transformation is in the early innings, and Logitech is and will continue to be an embedded provider of tools and devices for the emerging AI ecosystem.
4. Climate change is driving Logitech to be a leader in sustainability.
5. In a world where trust in the media, government, science and business are at an all-time low, Logitech delivers trusted experiences with its high privacy and security standards.

Daily Descending Triangle Breakout Pattern

LOGI formed a daily descending triangle breakout pattern. The descending trendline formed at $88.52 before shares fell to the flat-bottom trendline at $77.12. A breakdown occurred on its earnings release on April 30, 2024, as shares fell to a swing low of $74.72 before rapidly rebounding back up through the upper descending trendline. The breakout occurred as shares ramped up through $79.13 on the gap to $80.78. The daily relative strength index (RSI) is rising to the 50-band. Pullback support levels are at $79.58, $7712, $72.80 and $48.18.

Solid EPS and Revenue Beats for Q1 2024

Logitech reported Q1 2024 EPS of 99 cents, beating consensus estimates for 66 cents by 33 cents. GAAP operating income jumped 235% YoY to $140 million. Non-GAAP operating income surged 93% to $159 million. Revenues rose 5% YoY to $1.01 billion versus $962.5 million consensus estimates. Cash flow from operations rose 10% YoY to 239 million.

Breaking down the revenues by division:

• The Gaming segment saw a 7% YoY revenue jump to $273.5 million.
• Keyboards & Combos grew 15% YoY to $216.2 million.
• Pointing devices had 6% YoY sales to $170.68 million.
• The collaboration had a 6% YoY sales bump to $148.1 million.
• Webcams saw a 4% sales rise to $75.95 million.
• Headsets sales rose 16% YoY to $45.46 million.
• Tablet accessories rose fell 18% YoY to $55.81 million.

Mixed Guidance

Logitech provided mixed guidance for the fiscal 2024. Full-year revenues are expected to fall 5% to $4.30 billion to $4.40 billion. GAAP operating income is expected to jump 28% to $587 million. Non-GAAP operating income is expected to rise 19% YoY to $699 million. GAAP EPS is expected to rise 74% YoY to $3.87. Non-GAAP EPS is expected to rise 32% YoY to $4.25. Cash flow from operations is expected to surge 114% YoY to $1.1 billion.

Strategic Decisions to Accelerate Profitable Growth

CEO Faber laid out some of their strategic decisions to drive growth. Logitech will expand its markets in work and play that goes beyond the office. Play opportunities exist in console gaming and mobile. Logitech will focus on design-led and software-enabled hardware. The company plans to double down on its business-to-business (B2B) channel despite doubling in size since 2019. Its B2B channel is still relatively young. Logitech will build out its already strong global presence.

The company will reapply best practices to grow its wallet share consistently across emerging markets, representing over $1 billion in incremental growth. Lastly, Logitech will focus on building its brand, taking it from good to iconic. The goal is annualized growth in fiscal 2025, returning to low single-digit growth with strong operating margins. Non-GAAP gross margins are targeted in the 39% to 44% range, while non-GAAP operating margins are expected in the 14% to 17% range.

 “In summary, the path ahead builds on Logitech's impressive set of strengths, takes advantage of secular trends and makes a number of clear strategic choices going forward. With that combination, I'm confident that Logitech's future is bright, and its best days are still ahead," Faber said.

Analyst Downgrades

Deutsche Bank didn't share the same sentiment as it cut its rating to a Sell from Hold. JPMorgan cut its rating to Neutral from Overweight and lowered its price target to $85 from $92. While the recent quarter showed signs of growth and robust execution, a challenging macro environment will keep the medium-term constrained. Logitech's plan to return to growth in fiscal 2025 relies on stronger growth in macro-driven products like keyboards, tablet accessories and gaming in China.

Logitech International analyst ratings and price targets can be found at MarketBeat.   

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