Logitech's CEO Talks to TheStreet After His Firm's Latest Earnings Beat

CEO Bracken Darrell remains upbeat about demand for Logitech's gaming and videoconferencing products, and notes sales of costlier PC peripherals have been picking up.
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Following its latest sales and earnings beat, Logitech’s  (LOGI) - Get Report stock is nearing the mid-2018 highs it hit thanks to Fortnite euphoria.

The peripherals giant is up about 4% since it topped December quarter estimates on the back of strong demand for gaming products, PC peripherals and videoconferencing hardware. It also reiterated its fiscal 2020 (ends in March 2020) guidance for mid-to-high single-digit revenue growth in constant currency.

As was the case following Logitech’s June quarter report last year, I talked with CEO Bracken Darrell about his company’s latest numbers, as well as about how Logitech’s long-term thinking about some of its businesses.

Gaming Sales and Streamlabs

With Logitech finally getting past some tough annual comps caused by big Fortnite-related sales in 2018, the company’s gaming products revenue grew 15% annually last quarter to $246 million (27% of total revenue). Darrell mentioned that sales of flight and racing simulation gear were particularly strong during the quarter, and also noted that gaming mice and high-end gaming headsets did well.

And following an $89 million September deal to buy game-streaming software firm Streamlabs, Darrell said he’s “pretty excited” about Logitech’s opportunities to grow the business. He suggested that Streamlabs, whose software is often used by gamers to stream their activity on Amazon.com’s  (AMZN) - Get Report Twitch and Alphabet’s  (GOOGL) - Get Report YouTube, could “go beyond” gaming to support other live-streaming activity.

At the same time, Darrell promised Logitech would let Streamlabs run as an independent business, and while he didn’t rule out the possibility of offering solutions that pair Logitech’s hardware with Streamlabs’ software and services, he insisted that this isn’t Logitech’s main goal.

“Our real goal is [that] we want to build a services business in that space,” he said.

Videoconferencing Momentum

Logitech’s video collaboration product sales rose 24% in the December quarter to $92 million, and are thus far up 37% in fiscal 2020. Darrell mentioned that Logitech’s videoconferencing sales mix has recently shifted some towards costlier systems that can support larger rooms.

He also asserted that the video collaboration business has a long growth runway, given that penetration rates for videoconferencing gear are still pretty low. Darrell asserted that only 4% to 5% of office rooms that could potentially support videoconferencing gear currently do, and pointed out that Frost & Sullivan expects this figure to reach 12% by 2023.

PC Keyboards and Mice

Though not the sexiest tech hardware business out there, Logitech’s sales of non-gaming PC keyboards and mice have been steadily growing. The company’s non-gaming “pointing device” sales rose 4% last quarter to $155 million, while its sales of non-gaming keyboards and combo devices rose 8% to $156 million.

“We’re doing really well with higher-end products,” Darrell said about this business. With more consumers showing a willingness to pay up for greater precision, convenience and/or comfort, demand has been strong for costlier devices such as the $100 MX Master 3 wireless mouse (sales more than doubled sequentially) and the $100 MX Keys wireless keyboard.

Going forward, Logitech is also hoping that its recently-launched, $130, Ergo K860 ergonomic keyboard, which follows the 2018 launch of the MX Vertical ergonomic mouse, will provide a sales lift. And on the low end of Logitech’s lineup, Darrell was upbeat about demand for Logitech’s Pebble wireless mice, which were originally designed for China but are now being sold elsewhere.

Wearables and Smart Home Products

The December quarter was a rough one for Logitech’s “audio & wearables” segment: Revenue fell 17% to $82 million, after having risen 10% in the September quarter. Logitech attributed the decline to lower sales for its Blue Microphones segment -- it does a lot of business with podcasters and YouTube creators -- amid supply constraints and a decision to discontinue special-edition products sold the prior year, as well as lower sales for its Jaybird wireless headphones business.

However, Darrell remained upbeat about both Blue and Jaybird’s growth prospects. He declared both units, along with Streamlabs, to be “strategic” businesses that are investment priorities for Logitech -- ones meant to complement more established growth drivers such as gaming products, video collaboration gear and PC keyboards/mice.

When asked how Logitech aims to differentiate Jaybird in a hotly competitive wireless headphone market where Apple’s  (AAPL) - Get Report AirPods have seen runaway growth, Darrell argued their focus on sports activities (running, particularly) would help set Jaybird apart. “The authenticity of what we’re doing there is a real differentiator,” he said, adding that the Jaybird team is based out of the ski resort town of Park City, Utah.

Darrell, who during our July discussion brought up Logitech’s partnership with Procter & Gamble  (PG) - Get Report to offer a baby-monitoring system, also reiterated that Logitech continues exploring its options for launching new smart home products.

“We’re always working on new things...it’s certainly an area we should be considering,” Darrell said about smart home gear. “I’ll let you know when I have something to talk about there beyond the baby camera.”