Razer – A Brand For Gamers… And More? [SGO 21]
With a cult-like following and a brand synonymous with gaming, Razer has come a long way from selling gaming mice. The question now is: can they go beyond gaming as a company or is their brand so strong that they are locked into gaming? Could they have gone even further to entrench themselves to become a bigger platform and technology ecosystem provider?
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Reggie: Hey Coconuts! Today on TFC Stock Geekout, we’re going to finally explore a company that’s not listed in the US. They’re listed in Hong Kong, it’s a Singapore company and it’s synonymous with gaming. By now, you should know what I’m saying. They have a cult-like following and consistently push into new tech spaces over the years. While I believe some of their attempts could have gone even further to try to entrench themselves to become a bigger platform and technology ecosystem provider, they have a very strong brand, synonymous with gaming and all these people buying up their stuff… my goodness, right?
Expand Full Transcript
It’s a thing and they basically bought up the whole space so very, very powerful company and very strong in terms of their brand. Interesting company and I hope the founder, if you’re listening, Min Liang, I hope you can come on the show and share with us more: what do you see your company into the future?
Joining me today to geek out on Razer is Thomas Thio, our in-house stock and tech geek. And for all of you that don’t yet know, Razer started out selling gaming mouse. Those kind of very complicated gaming mices and people use it really just for some sort of advantage in gaming.
I’m not a gamer, but I know there’s like all these weird weird keys and people use it to get themselves that little bit faster compared to their competitors. They’ve come so far, they’ve all sorts of lines these days for laptops, desktop, keyboards, even chairs and all that jazz, so a lot of new things.
I think one of the questions that we try to understand in our discussion today is can they jump beyond gaming as a company? Can they go beyond it or is their brand so strong that they’re locked in and do they really need to do that? I think for all that and more, keep listening and yeah, Min Liang must come on the show and talk, okay?
For your reference sake, this episode was recorded on the 14th of August, 2021. Our discussion today is solely for education and entertainment purposes only. It does not serve as any form of advice or recommendations. Thank you for loving what we do and for empowering us financially to do more for you. If you want to continue this discussion, join our Telegram group, and yeah, let’s keep this going. Let’s geek out!
Finally out of the US! We spent a lot of time talking about a lot of US companies and I think rightfully so, since Thomas is very focused on the tech space, right? A lot of that innovation at this moment in time is still in the tech space. So yeah, you need to clap hands… do we need to clap hands? Okay la, clap la *claps*
Okay, let me breathe… okay finally, we’re out of the US.
Reggie: We spent a lot of time in the US… I think primarily because we are very tech focused and we just spent so much time talking about all the innovation there. Primarily, I think… do you think most of the innnovation is still coming out of the US today? What are your thoughts?
Thomas: Yeah, for sure. I think most of the innovative products and services is actually coming out of Silicon Valley. I think there’s a lot of people who are daring to dream and a lot of resources are being funneled there so that’s why you see a lot of new ideas coming out of there. Nothing’s stopping say, Europe and say, even for Singapore, producing these kinds of new innovations but it’s basically where the money and talent goes and so far… by far and large, Silicon Valley is just taking up a large sum of both of these resources. China’s coming up quick as well.
Reggie: Yeah, exactly but that does not mean that there is no other tech companies coming out, but it’s just… I think a lot of the forefront, the most innovative, fringe, interesting things are coming out of Silicon Valley but I think China is also climbing up in a lot of these things, right?
Thomas: Yup, for sure. They’re pumping a lot of resources into their own Greater Bay region so that’s going to become The Silicon Valley in, let’s say, Asia – that’s what they’re trying to do. But already you can see… in Shanghai especially, there’s a lot of tech development that is going there. People have really fast, rapid development times, even for hardware companies. Competition is extremely, extremely tough there, even more so than in Silicon Valley I think, but yeah, it’s just wherever these two resources go… resources, as well your talent.
Reggie: Talent and money, essentially. That will breed a lot of innovation, yes, and that’s the 大湾区 (Greater Bay Area). Good stuff!
Today, we’re going to spend some time to talk about this company that I think everybody is kinda familiar but may not have used their product and may not have studied the company and that is Razer. But why Razer and what are your preliminary thoughts of this company? It is a Singapore company listed in Hong Kong for everybody that don’t yet know.
Thomas: They also have operations in the US. Actually they’re a bit all over the place. A bulk of the manufacturing actually comes from the US. That being said, it’s not say “oh, it’s an American company”. It’s led by a Singaporean so that’s pretty interesting. Another thing why we want to talk about it is also… this is almost like a household brand, especially for gamers. Everyone who games knows Razer, but not everyone who games uses Razer. They have very high quality products according to the reviews and there’s just a lot of brand power which this company brings, almost to the level of Apple.
It’s very, very cult-like and it’s interesting to talk about how they have actually gone through their different business models. They’ve tried and experimented. The recent one is Razer Pay and Razer Card but they’re first and foremost a gaming products company and some kind of services to assist the gamers in streamlining the way that they play their games. But first and foremost, it’s a hardware company.
Reggie: Before we go into the hardware business, do you have any broad comments on the Razer Pay and Razer Card. I mean, they announced that they left, right? What are your thoughts about it?
Thomas: I think they were doing it as a very opportunistic way of tackling FinTech, let’s say in Singapore or Malaysia and Indonesia. At the time, they were one of the contenders for the banking license so they had to show that they were doing something in order to edge up against the rest who are probably going to do the same thing as well. They try and take the next step where “okay, let’s use a bit of your hardware and a bit of your payments infrastructure”, show some basic prototype first and get it into production.
So some people are already using it, they can go to MAS and say that “okay, we’ve got something going on already. Just give the license to us. We know what we’re doing”. It’s that kind of thing. At the end of the day, whether it makes sense or not for them to continue ultimately rides on whether they got their license or not.
That doesn’t stop them from getting other licenses in other countries so they may still have banking in their sights, but what they have already been doing… what they’ve just announced already is that they’re discontinuing Razer Pay and Razer Card altogether so I don’t think so.
Reggie: Is it altogether, like around the world, or is it just in Singapore?
Thomas: Around the world.
Reggie: Okay, so they’ve given up in the game lah. They have thrown in the towel! I do think a lot of people underestimate the kind of hill that they need to climb when they go into a lot of these kind of parallel spaces and they are already very dominant players in the space. So yeah, it is something to be very aware of.
Shall we look into a little bit of their business model? As a non gamer myself, I know they sell very expensive hardware for gamers so yeah, can you kinda walk us… oh, by the way, I just want to shout out there: my webcam is actually from Razer. Yeah, so the webcam is from Razer. It’s quite good so far compared to the other stuff that I’ve tried for this price point so I wouldn’t say that they are the most expensive, but yeah. I don’t use their keyboard. I don’t use their setup, those are the main s**t. Alright, so yeah. Walk us through, man. What is their business model? What do they do?
Thomas: They are really a hardware company but meant for gamers. You’re talking about your keyboard, your mouse, your mice. You even have specialized laptops that you want to play very high performance games on… webcam and all that. It’s all the peripherals that is built on this whole game and streaming trend.
Originally, they started out with just mice. You have your special mouse which is designed in such a way which is optimal for you to do extra clicks. It’s got extra buttons so you can attach your macros or shortcuts to it. For gamers, that’s a lot of advantages, right? Because you don’t need to do things in sequence. You don’t need to do things…. like three or four different things before you get something done. It can all be scripted and put inside what they call a macro – like Excel macro, same thing – and put it into a button that you can just activate from your mouse or on your keyboard so this gives you an extra advantage.
And way back, I think the first time I heard about Razer, (I) was still in high school so I think about 10-15 years ago. There were no other companies doing this, like really no other companies doing this…
Reggie: I was sighing at 10-15 years ago, not the companies doing this.
Thomas: I still remember it well.
Reggie: Yeah, I know. You still can 想当年 (think of those days)… haven’t forget yet. Anyway, continue.
Thomas: I think they were really one of the first that actually did this because no other mice company or keyboard company actually bothered to look into this space. They hopped onto the trend and they really invested quite heavily into their R&D, especially for hardware. They were one of the crazier ones and I think that worked out well for them.
After the gaming mice, the keyboards and all that, they decided to go more into the platform side of things. This is where the services angle comes up. Basically, it’s just a game payment service. Imagine you’re playing some kind of game which requires you to have prepaid cards… let’s say for a subscription to the game or prepaid cards to buy some in-game items.
Certain countries… they don’t actually have a very sophisticated credit card system. Even those playing… like 16 or 14 year old playing those games, they cannot get access to a credit card also. So what do they do? They need to go to some convenience store, they go and buy the prepaid card and then they have to redeem it.
This whole process is being done through Razer’s network, through Razer’s payments platform. Some games… they are on Tencent as a mini app: Call of Duty, Genshin Impact, that kind of stuff that is very common today, but even from way back, they’re using the same mechanism to go and do this.
That is their services arm. As we talked about… recently there’s also the FinTech one, but now not so much. So maybe we don’t have to talk so much about it lah.
Reggie: Sorry to Min Liang… yes. You guys gave up, so nothing much to talk about. I think when we were preparing this, they haven’t given up yet.
Reggie: And then they give up *laughs*
Thomas: Like, two days ago.
Reggie: Two days ago. So yeah. Anyway, end of Razer FinTech. What is their product line actually, at this point in time? I know they started with the big mouse, right? A very, very big mouse and with all the hot keys, like what you said. But at this moment in time, it feels like they are even beyond…
Thomas: Many, many.
Reggie: Yeah, they are beyond mouse, keyboard, laptops, they… it feels like they’re going to a little bit of a… kind of like a Xiaomi play. You know what Xiaomi did, right? Xiaomi at first started with the phone only, and then they started branching into household products… all those other things, so what are we seeing with Razer’s product line?
Thomas: Yeah. So I think it’s evolved, rather than just from hard gaming. The essentials is your keyboard and your mouse… they move on to create headphones, the streaming camera, microphones, all the extra paraphernalia. But now and then, they also just try something when they’ve built up a brand already… like a toaster. They’ve actually done this. Of course, it’s discontinued, but there’s just something a bit random that (they’ve) done now and then.
There’s also Razer prepaid cards, so you just buy Razer’s one, rather than individual one. It will just work for the same games that you play. There’s also a NIO car. The NIO is an EV (Electric Vehicle) company in China. They had some collaboration with NIO to actually produce this car. Basically, it’s a tie-up between them. It looks like a Razer mouse. The car looks like a Razer mouse, so it’s quite cool. It’s got green backings, got neon lights and all that… yeah, but at the end of the day, it is whether you want to buy that car.
Their focus primarily, their product line is really on games... backpack, they’ve got keyboard replacement… what do you call it? Key replacements, because if you play too hardcore then after that it breaks or something then you have to go and replace it.
Reggie: But it’s pretty interesting how a company can build all these different products around an idea of gaming and they don’t actually need to build the core products behind, whether is it from the GPU, the CPU, the main stuff that people are really using. They’re not like… they’re not super techie. Actually, a lot of their stuff, I would say, the technology is very commoditized. It’s very off-the-shelf kind of technology but it’s built together in a way from… whether is it from the molding or the user experience, it’s targeted at the gamer. But actually, the core technology inside not like revolutionary and all that. Is that a fair statement?
Thomas: Yes, it is. Actually, anyone else could have built it, but what they’re really riding on is the brand. So a lot of people just go to the… “oh, Razer brand. The logo is green. It looks damn cool. I associate with it as a gamer”.
And then here comes, say, Logitech or some other competitor… some Chinese brand and all that. They also try to build the same thing but it’s like blue in colour. “Nah, I wouldn’t want to buy that”. But actually, you see more and more competitors coming up, because there are no kinds of hard patent intellectual property controls to prevent people from actually doing the same thing. It’s a keyboard, right? It’s a mouse, it’s not an iPhone.
Thomas: Even iPhone, they’ve really more advanced ways of doing things such that competitors can’t do the same thing. It’s just a very niche play and I think Razer made use of their timing as well as their brand to really capitalise on it.
Reggie: Yes. I think at that point in time when they were doing all these stuff, it was still quite a fringe idea. Gaming wasn’t that big and e-sports wasn’t that big yet so they could… essentially, they could capitalize on the whole market. When the market is not as big, sponsorships are cheaper. Everything is lower. You can enter, your can dominate and they have gone really, really far with doing all these kind of peripheral. I will call them low-tech products, but very well-branded and very well done in a user interface. But yeah, so any other major processes you think we need to understand about this company before we dive deeper?
Thomas: I think it’s really much to do with the partnerships. They cannot be all over the place, but they have to be where the gamers are so you see a lot of live-streaming competitions. You see a lot of… maybe even the live event itself, you see Razer there at some point or another. This is becoming increasingly competitive as well, even though it’s a major process for this kind of companies.
You’d see other gaming companies, say, SteelSeries. They’re also wherever Razer is. They are sponsoring all the different teams that’s competing in any other game also to go and use this but that’s actually a major thing because ultimately, the brand is what makes this company succesful.
Reggie: Yes, definitely important. We’re really in the situation where a lot of these competitors are also doing very decent products and it’s a whole same thing with how a lot of big consumer brands sponsor sports leagues. With a lot of e-sports leagues, it’s also these kinds of stuff. A lot of big consumer brands that they do decent products, but they are not technically very unique and they’re just fighting for resonance, fighting for the brand, fighting for the position in the whole market.
Thomas: Yeah. So it’s not say… later we can go a little bit into the moats, but not so much as you would see it. It’s really that brand and they have this very cultish kind of audience or customers. Anything else, like the toaster, there’s going to be people who buy it, but they’re not going to have a completely new product line. You’re going to have a new car, some people are going to buy it, but not all the way.
Reggie: No, no, maybe…
Thomas: It’s that kind of effect.
Reggie: They can add a master key on the mouse where they press the thing, then the toaster start toasting.
Thomas: Oh, wow!
Reggie: Right? Then it’s a full lifestyle suite kind of thing, you know? Maybe… Razer can hire me. But anyway… so when trying to understand Razer as a company, what are some metrics that you’ll look at?
Thomas: I think definitely, the number of gamers that they have in their platform matters and what’s the proportion of that in relation to all the gamers worldwide. We know only the numbers for the amount on their platform which is 120 million users, and how many have they grown since the last time. It’s 68.2% year on year growth. A lot of people picked up gaming, especially during this COVID period. Monthly active users especially, that picked up quite a bit.
FinTech, we’re not talking about it anymore. Basically, your number of payments volume still matters because it’s still their services, part of the business, but no longer for the e-wallet as well as the Visa credit card.
But the number of payment volumes still matters. As long as people still stay within their system, they’re still going to make money. People still use it as a platform. Of course, there’s others also but others try to have their own kind of garden approach like Garena. Garena has their own set of games. They also have their own set of payment platforms on that and they don’t actually release. You can only buy prepaid cards specifically for that game or that platform… same thing which Razer is trying to do here as well.
Reggie: Yup, for sure. Very, very important. But would you… are you concerned about… okay, I know I’m a little bit jumping the gun, but are you concerned about the whole movement towards the mobile gaming wave? It feels like Razer’s products are very much for the pro gamer and for… essentially, the very serious gamers. But a lot of games, a lot of new releases, some of the best stuff, the most profitable games are all going mobile. Do you have any thoughts on this? I know they are trying to do a little bit of mobile stuff but it still does not feel like it’s very big in their repertoire.
Thomas: Yeah, so this one… not very quantitative but it’s something that I’ll say you should also track, which is a good point. The kind of games that must be played on PC, as compared to other kinds of platforms like PlayStation or Xbox and things like that, these are your more traditional games like League of Legends, Counter-Strike… or I dunno, how long ago was that? Team Fortress, World of Warcraft… all these kinds of games, it really needs to be played on PC and no other platform can actually do that. Call of Duty, Battlefield…
As more people actually play these games, that’s a great thing. But if there’s considerably less, then yes, there’s less need to actually have these kinds of gaming products. That being said, it doesn’t mean that all gamers will also use Razer, or Razer… sorry, let me rephrase: Razer is not only meant for gaming, it can also be used for work. Some people just like to macro things. I know of an accountant who macros some Excel macros to his Razer.
Reggie: I’ve seen how some of the major accountants for major audit firms, (how) they work. They can talk to me while they’re using the thing. They can look at me and chit chat but they are still doing their accounts and I was like, what the hell? You guys are really like machines. That’s a whole different discussion altogether, but…
Thomas: Yeah, there’s a saying, right?
Reggie: Yup, go ahead.
Thomas: There’s a saying for the accountants or even for management consultants, they never actually use the keyboard… sorry, they never actually use the mouse. Everything they use is keyboard and shortcuts.
Reggie: Yes, the shortcuts are crazy. But that being said, Razer is already quite big in a lot of the markets that they’re in at this point in time?
Thomas: Yeah. (When) we look at total number of gamers, it’s 2 billion gamers last time, pre-pandemic. Now at this current juncture, it’s 3 billion. It’s 3 billion players. They’ve got 120 million users on their platform. All these gamers, it constitutes so many across the different platforms. They’re just gamers, it’s just one group. We really have to look at… it’s very loose so we have to look into PC gaming specifically, and then from there you want to split out into each of the games which people actually play. Ultimately, they have to ride on their brand, but going into mobile would be something that they would want to go into also.
The thing is they don’t have a mobile platform. They’ve tried with their own phone, but I think that was discontinued as well so your Android and iPhone still have… and your Samsung… basically, it’s Android also. That’s another discussion altogether. Google is trying to go into the hardware later on with Pixel. That’s where the trend is going to go.
Same thing with content. It doesn’t mean that people just play mobile only and they don’t play other platforms. There’s a lot of these overlap,
Reggie: A lot cross… there’s a lot of intersectionality these days in development of games.
Thomas: Right, so where does Razer stand in all of that? It is also a question.
Reggie: Yeah, but I also want to point out that I don’t think Razer is not trying to do anything in the mobile space… they are. They are doing a lot of the accessory stuff, but honestly, I do feel that if they manage to ride out into having their own set up like Samsung or iOS, having actually their own ecosystem, that would have made them an extremely, extremely exciting business instead of just building peripheral accessories which is how they started, even in the gaming space.
Let’s take a look a little bit at their financials then. They are definitely very interesting as a company, very profitable. So yeah, what are the numbers?
Thomas: Okay. I think first and foremost, they also have the number one market share actually in Europe, China and APEC (Asia-Pacific Economic Cooperation). In US, it’s already $1.1 billion in total sales for gaming hardware. As of now, they still are leading for games. They are number one in the US also for premium gaming laptops.
Their revenue… we have the numbers on 2021 TTM (Trailing Twelve Months) versus 2020. They grew 48% year on year to now US$1.2 billion. This is even after exiting their mobile handset business… for several reasons. Basically, they discontinued that but they still made this much because there’s a surge of gamers and a surge of the demand for their products.
Revenue by segment… basically, they have the hardware segment and the services segment. Hardware has to do with your mice, accessories, keyboards and all that. It grew 51.8% to $1.1 billion. Super high, right? This is like 90+% already.
Services… very, very minimal. It grew 66.8% but it only contributed $128 million. That constitutes the total US$1.2 billion-ish of revenue already. Services is very, very small, actually. What you should really focus on is just the hardware.
Reggie: But I think… I know it’s a little bit optimistic to say but services have very high margins, right? It’s similar to…
Reggie: …the whole Apple kind of thing. You are Apple user but when you’re in the ecosystem, all the services that they funnel you through, they actually make very decent margins, much more than the hardware in itself. But of course, Apple is a different story. They also make money from the hardware, like serious money from the hardware so that’s a whole different discussion. But yes, we never know what kind of services can come out of it, but just as of now, the observation is that it is a very small fraction of their overall revenue, but high margins.
Thomas: But that’ll be interesting, if Razer decides to go on a platform play. It definitely needs more reinvestment because with any platform, you need to go and acquire as many users as possible. Anyone else is also wanting to set up their own platform.
Reggie: I know, right? I don’t know why they never tried to compete with Steam before Google, Apple want to come into games. They were already very ahead of everyone. But we can always rate the management later in our discussion. I do think that they tried a lot of things… not all stuck, but it’s also quite amicable that they managed to end it in some ways. It’s not so easy to kill initiatives, but yeah. What about their costs overall?
Thomas: Ooh, okay. As with any hardware-focused company, I think the cost of revenue is something that you should look at. It’s negative… it’s like, it took up $943 million so they made a lot of revenue from it but they also lose a lot because of the cost of this production. But the costs remain around the same.
The sales was a bit higher so you can see that the margins contributed by that is actually higher as well. If you look at from an OPEX (operating expenses) point of view, it’s $270 million total across all their different segments. For margins, it actually improved by 22.3%. This was the improvements from the hardware.
This quarter… they actually turned profitable and this is GAAP (Generally Accepted Accounting Principles). This is pretty good, ahead of expectations because of the drive in number of gamers and they’ve also been trying to cut the costs. They’re making a lot of productivity improvements across the last 3 years on these hardware margins so that’s good. You’re seeing that the costs of the revenue for the hardware segments remaining the same, if not lowering across the years, but the revenue is increasing so they are doing what they are saying that they are doing.
Cashflow wise… yes, profitable. They made $15.2 million this year. Yeah. And…
Reggie: It was the first time they turned profitable, right?
Thomas: Yeah, last year they were losing $17.7 million. This year, they made 15 million.
Reggie: Okay. That’s pretty good and I think interestingly, they have no debt. I think that’s a healthy situation and they do have quite some cash in their bank so I think that’s pretty good.
Thomas: Yeah. $600 million, so let’s see what they do with it. Before this, I actually expected them to expand more in their FinTech angle. But now, it’s a little bit of a ‘no head no tail’ (no progress kind of situation). They are still majority hardware. Are they gonna double down on hardware? If so, then what’s the long-term roadmap for it? A bit questionable at this point.
Reggie: Yes. The hardware business is a hard place to be but they have essentially built it up, so respect to that. But I would say… yeah, if they do not have a lot of core technology that are very unique to them, then they are essentially fighting in the commodity space. They’re just playing the brand game.
Reggie: Any other things to add about financials?
Thomas: Yeah, something I want to just bring up apart from all the rest of the Stock Geekouts is actually the emphasis on the R&D (Research & Development) also because this company… if let’s say, it’s focused so much on the hardware, how else is it differentiating itself from others?
R&D actually reduced over the last 3 years that they are doing this cost cutting exercise. Yes, it constitutes some portion where you are making the hardware operations leaner and all that but now that you have… Razer is no longer going into their platform side of business, they’re not going into payments either but they’re focusing on hardware. Assuming that’s the case… but they didn’t R&D too much. Are they actually losing ground compared to their competitors?
I would actually think so, because if you look at SteelSeries or you look at other competitors, even Logitech, they’re coming out with quite innovative designs. Slowly but surely, they’re actually catching up so I actually like to see this R&D expense (either) remain the same, or increasing actually…
Reggie: They definitely need a cash cow if they want to spend more on these kinds of stuff. But I think you rightfully pointed out, because there’s a commoditized situation… it’s an increasingly commoditized space that they’re playing with. For everybody that don’t understand ‘commoditized’, it just means it’s very easy for everyone else to produce. It becomes a commodity. So yeah, it’s just a design play and all that jazz. There’s not a lot of patents inside. It’s definitely a bit challenging.
Thomas: I’ve been seeing a lot of accessories coming up. Headphones here, left and right, extra dongle, sunglasses, toaster come out… and then, now and then, maybe something interesting like… it’s like an Android console. It’s like a little gaming console that you can connect to your Android to have an edge against the other gamers who’s playing mobile. Rather tap tap tap, you have a control. That’s pretty innovative but we are not seeing much contributions from that and not much growth from that either so where is the focus? This is the main question for Razer at this point.
Reggie: Interesting. I think Xiaomi went through quite a period also. Xiaomi’s in a similar situation, very commoditized space that they’re in and then they go into a lot of other low hanging lifestyle products, trying to be smart and all. It’s also a question mark what’s going to happen there.
Okay, let’s talk a little bit about the management. We should… yeah, let’s talk a little bit about the management.
Thomas: The CEO is Tan Min Liang. He was there since 2006. I think he was one of the founders as well. He was previously the creative director from Razer itself, but something interesting: he’s also part of the remuneration committee. This is pretty interesting, right? The CEO is also part of it. He has got a background in law. Usually, these two roles are actually separate in most other companies, but if the board is okay with it or he has some say in the board also then you can’t really fight. In other words, this is his company.
Reggie: He’s the founder. That’s something important. He’s not just the CEO.
Thomas: Yeah, and also the remuneration committee. If he is part of that, he can just justify why he’s being paid a certain amount, even though… say, maybe they put the OKR (Objectives & Key Results) or the KPI (Key Performance Indicator) of the board… sorry, for the leadership, to be raising the stock price as much as possible or to increase earnings and all that, it won’t matter.
So this… it will invite more questions on why this is the case. Is he really making decisions for the best of the company or is it for the best for himself? That’s something that is quite interesting.
COO (Chief Operating Officer) is actually Kheng Joo Khaw. He was there since 2012. Previously, he was at HP, in the tech manufacturing operations for 26 years, so pretty long. He was also the CEO of MediaRing. They were doing mobile voice over IP (Internet Protocol), voice data computing services. Back then, this was like 2002 to about 2009. This was still a big thing when this segment of IT was not really done very well. He was the CEO and then 2005 to 2011, he sat on the board of SATS. That’s the airlines…
Reggie: Big ops guy.
Thomas: Mmm mmm, and then we have the CFO, his name is Tan Chong Neng. Previously, he was the group CFO (Chief Financial Officer) of Tri-Star Group. The global sales and marketing is Bob Ohlweiler. He’s been there since this year January. Previously, he was in Kodak’s consumer business in Europe, Africa, and Middle East, and also the sales and marketing at HP.
We find a commonality. There’s some HP roots there for Razer. He also did business development and music licensing at Musixmatch. Do you remember Musixmatch?
Reggie: No, I’ve never used Musixmatch.
Thomas: It’s like the period of Kazaa kind of thing and then there was also Musixmatch, which was trying to become like Spotify. Rather than downloading things illegally, you use Musixmatch, no?
Reggie: No. Never been in the era. But yes.
Thomas: Make me sound old sia… alright, okay. Yes, he was doing this previously and then it was acquired by Yahoo, so quite interesting.
Reggie: Okay. How will you rate the management? It looks like they have a decent strength in operations, which I expect them to have because it is a hardware, a very long supply chain kind of business but how will you rate the management overall?
Thomas: Between an A, B and a C. So…
Reggie: I don’t think we really need a grade, but it’s just more like what do you think are stuff that we should be aware of when looking at this as a company, as a management of the company and based on the previous results and all that, how would you rate them?
Thomas: I think going back to Razer being a hardware company but it’s a commodity kind of a company, it’s just churning out different kinds of products at this point and then marketing it as much as possible. For these kind of operations, I think that management is suitable, but they are not doing anything revolutionary, not anymore.
Maybe back in 15 years ago, they were doing things that were revolutionary and the team looked different then. But now, they haven’t actually progressed past that. They are doing more of the marketing side of things. It’s really… next year, it can be a refrigerator by Razer, and then a toaster. It can be another electric vehicle car tie-up and all that. It doesn’t matter. They just need to get the manufacturing right and the team seems structured that way.
It doesn’t mean that they are going to bring in big guns who was going to lead something very innovative on the technology side of things. There’s no innovation. Let’s say… design a totally different mouse or keyboard plus mouse which will revolutionize the way you work or the way that you game. There’s several designs like that, but those kinds of things existed already, and actually not many people use them so the product didn’t really also take off.
So who’s really driving the company is unsure. Things like, who’s really chionging (devoting time/pushing for) in the different areas? There are people, but is there a common direction? I think this is a question mark.
Reggie: Mmm. I also think it’s important to note that they are still very young listed company so far and it’s very different from running a private company and running a listed company. You don’t get so much scrutiny, you don’t get so much pressure. People be like “what are you planning to do? What are you planning to do?” So I think there’s a… there’s also that element of things.
But yeah, as retail investors, we should be very critical about what is the business plan? What’s the future? If I’m not seeing anything, then what is going to happen? I think those things are very, very real stuff.
Thomas: Yeah. Because although they have cash in the bank, it doesn’t mean that they can just keep experimenting over and over. This is also testing shareholders’ patience, like which is the direction that you want? They are already an established company. They have global operations and all that but the end of the day, where do they want to focus their time and attention on?
Yes, maybe their manufacturing, their production process for hardware is really good but what is the overall strategy? Where is the company headed to in the next 5 or 10 years? That’s something that we… I don’t actually see inside the transcripts. I don’t actually see inside their reports as well. It’s more of very short term kind of adjustments, like “hey guys, we have a toaster”, and then like “hey, we are going to do FinTech along the way and then this will be a new kind of platform that we’re going to be focusing on for the next two or three years” and then suddenly cut.
Why? There’s no explanation. I’m kinda looking forward to why in the following earnings report or at least make some announcement on why, not just suddenly say that it’s cut.
Reggie: Yeah. Next season, we’ll have a ‘Razer Waffle Iron’, so that all you gamers don’t need to work as hard for food. But anyway, Min Liang is in Singapore. He’s a Singaporean, so I don’t think it’s that difficult to get him. So shout out: if you are listening to this, come on to the show! I want you to share with us your thoughts, your plans, your struggles. Because although we are down here being very critical about the business, being very critical about the future plans, but as an entrepreneur, I know it’s difficult. But yeah, so maybe… me as an entrepreneur, I’m vibing with you but as an investor, nope. I’m still very critical about it.
Thomas: All these questions are popping up. I don’t have a position, but researching into this, I will have more questions. This could be answered somewhere then this will make things a lot more clearer, whether to invest in the company or not.
Reggie: Yeah, of course. I think there was a lot of missed opportunities. Having a dominant position at that point in time, all the way till 10 years from then to now, there were a lot of things that could be done, whether is it challenging Steam or whether is it having their own mobile platform and even the whole FinTech and all that. They always feel like they’re a little bit late to the game.
I always feel like they try to do it, but it’s like always a little bit late. It’s like other people are already doing it and then they try to come in and fight, but they don’t have enough of a war chest to fight because they don’t have that very high-margin cashflow-churning juggernaut in their ecosystem for them to really play these kind of late game, essentially.
Thomas: Because after a while, you start to think like… actually ,they did sink some resources into it.
Reggie: They did!
Thomas: Like the whole notion of having Razer Pay, even as a point-of-sale or some way to complement the Visa or MasterCard tap-to-pay mechanism. That was actually significant investment.
Thomas: So if they continue to do it, they could be somewhere, but I’m not sure whether there’s underlying some operational issue or some licensing issue and all that. Those could be further explained, of course.
Reggie: May or may not. I think executionally, honestly… while I was living in Singapore for this one over year, it was the height of the whole Razer Pay thing that they’re trying to do, I think the operation… the execution is not good. The execution was very wonky. They try to give out free mask, the vending machine. Those are stupid things. Google is throwing money at you to use Google Pay. Even a lot of the other smaller guys… even auto, they were doing POS (Point of Sale) systems. They were going online, and a lot of those other guys, I think they were doing a lot better from an executional standpoint, which is why I’m saying that they feel like they’re always slightly late to the game.
It’s like there are already dominant players, there are already people that are executing very well. It does not mean that if someone is executing well, you cannot compete. It just means that you need a thicker war chest to compete and you need to be faster. You need to be a little bit more unique in your execution. So yeah, as of now, it just feels like it is not as interesting, but would you think that the company has any moats that we should recognize?
Thomas: Have! I think they have a very strong brand. They’re still the go-to brand for gaming, number one market share in a few countries already. There’s several reasons for that. People still go to it as the first thing that they want to try. “Razer, does it support my use case?” and then I’ll just compare with the rest of the competitors and they find that, okay, the rest of the competitors are kind of there, but not there yet, I’ll just get Razer.
So they are the go-to brand for gaming and there’s a very strong cult behind Razer. There’s a reason why it was so… any product that they launch, there’s going to be some people that buy. Doesn’t matter whether you discontinue it down the future, down the road, but people will at least try. They belong to a certain kind of community. They really resonate with the brand and that’s something that not a lot of companies can actually do so this is what Razer has going for them.
They were able to sell masks with a Razer logo. I mean, it’s aesthetic other than just providing you protection, right? It gives you the Razer logo on your face. It’s like “wow, okay”. People are still willing to buy that for… I think it’s 20 bucks, 30 bucks for a pack. It’s quite expensive, but people will still do it.
So I think they are able to pull off these kinds of effect which Apple also has. There’s a very strong cult behind it. I wouldn’t go to the level of saying that they have some kind of walled garden, but that cultish kind of mindset, you can do a lot of things with that. That’s how you can actually bring your marketing of new products into life by really riding on that.
The second thing I think is their integrated gaming platform. They have a bunch of games already which they are closely associated to, whether they sponsor it a lot or they partner with other people who have… inside their own platform, they can actually do something about it. It’s still a very small percentage of their revenue, but at least they have it now, and it’s entrenched. People are still using it to make the payments, to go and do prepaid stuff and all that.
I was going to expand on Razer Gold, Razer Pay, the whole Razer FinTech around this. Actually, there’s a whole strategy and ecosystem for this but it’s a question mark at this point. I think they could’ve done a lot if they continued so I’d like to know the reason why they actually discontinued and what’s the next plan.
Reggie: Because once they discontinue this external ecosystem, then the whole FinTech thing just stays within a gamey ecosystem once again.
Reggie: Yeah, I know what you’re saying because if they had the Razer payment wallet or Razer card, then in-game spending can connect with offline spending and then it becomes a flywheel, right? All the gamers can go out and buy and then they also collect points. They get rewarded back in the in-house, the in-app stores. There’s a cycle that can be very sexy as a business for them. It could have been a very big thing.
Thomas: Right. There’s a whole angle for their marketing. The ‘Youth Use Millennial Bank’ or even like the ‘Gamers Bank’. That’s really cool. If you had a Razer card or this kind of Razer Visa Card, everyone knew that you were a gamer and you were associated with certain perks which only Razer can give. Eh, I will get that sia!
But now, if let’s say there isn’t these kinds of things, why will people actually go in? You’re missing one part of the ecosystem already. What’s going to replace it or is it totally just going to be left hanging?
Reggie: Yeah, interesting. I do think that they should try again? I’m not sure how. I’m not sure if they are actually going to do it, but let’s see how it goes because I do think that if you canbring the gamer out of the game and stay with them throughout then you have the cult-like following to then continue to reap the upside effect. But yeah, as of now, no real plans.
Okay, any other growth strategies that you think they can ride on? Because I do think that they are riding on a very good tailwind, whether is it the rise of gaming, remote working and all those kinds of stuff. I’m not discounting all of that. I mean, I’m using a Razer webcam, let’s be real. I think they are pushing out some pretty good products, but yeah… I’m not sure. What are your thoughts on future growth?
Thomas: Okay, e-sports is still growing. The pandemic is an additional boon to that because everyone’s staying from home, but it’s temporary. Well, we’d like to think it’s temporary. Moving forward, we want to see more innovation. They could… they’re trying with their mobile gaming already. They have different accessories, things like the gaming console attached to your Android device or your iPhone device and all that, but more than that, right?
Something more long-term rather than just a passing trend would be, say, AR (Augmented Reality), VR (Virtual Reality). Are they doing any R&D in that direction? Are they also going to different kinds of platforms? Wherever the game is, Razer is there. It’s not just PC anymore. I’m talking about PlayStation, Xbox… are they also giving some kinds of accessories at least? They can address that or it’s not part of their plan altogether?
Again, a big part of their growth I thought was going to come from their bank side of things. There’s really a lot of opportunities. Is it because of the operational costs? It won’t make sense if you don’t get a license, or it won’t make sense because there’s certain things which is not part of the play yet then they discontinue for now.
Yeah. But ultimately if hardware is left, then yeah, I think where their opportunities are going to be at is wherever the game is… the games are.
Reggie: Okay, fair. Yup, so I think broadly speaking, it’s a decently executed company. In closing, do you want to talk us through some of the risk factors or competition that you think we should be aware of when evaluating and trying to understand this company?
Thomas: Yeah. The big one is really the shift to mobile or other platforms… not necessarily that everyone will still be in the cult of Razer. Maybe at a certain age, they grew up and then they find that, “Okay, I need something more corporate. I go for Logitech, or like this brand…”
Reggie: That’s the power of branding but also the problem with branding, right? If you are a brand too closely associated with a particular thing… I’m honestly not sure if business people will bring a Razer laptop to business meetings.
Thomas: Yes, that kind of thing.
Reggie: So that is a… yeah, it’s a two side things. Yeah.
Thomas: You got to have some kind of hidden basement or hidden room just for gaming and then all your Razer stuff is there… your ‘other persona’. Then outside, you are very professional, very corporate, but behind the scenes, oh, everything’s Razer, that kind of thing.
These are really consumer trends and with consumer trends, there’s always a risk that it changes. Overnight, it could be something else. For example, people might be… say, they don’t like the colour green anymore. Wah, jialat (dire/problematic scenario). This is like totally extreme but in the context, the very serious one is at least it shifts to other platforms or the consumer taste is shifted also.
People don’t want to play PC games anymore. People want to play just their Androids or iPhones and they may not want the accessories also. So how? Then there goes your business model, right? You need to come up with other ways to make that work and how that is going to come about is new products, new services. You have to innovate.
Reggie: Cool, cool. Yeah, so overall, I think Razer is still at a very… a relatively simple business model: good products, well-branded, churned to their community and just keep growing. But yeah, I’m excited to see if there are any interesting growth opportunities and to see whether the company can continue to grow.
I think you rightfully point out about R&D. We don’t want any guy… any company that is playing in the very high tech space or specifically in tech, where the life cycle of products, the life cycle of services is relatively short and very competitive. You really want to be very cautious about investments in R&D. Okay, cool! Any last thoughts to add before we end off?
Thomas: I think they also have a pretty good control of their supply chain. One of the remarks made by the CEO this quarter was that actually they have quite a bit of diversified suppliers. Even though there were supply chain constraints, they actually still kept the costs constant or low so you can see that expanding with their margins so this discipline is really good. I think they have it pared down, especially for the supply chain control. It’s really just the innovation part. What’s next? Maybe we’ll find out in the following quarter.
Reggie: Yeah, okay. Min Liang, come on the show. Let’s talk about what’s next. Okay, see you guys! Take care! Bye!
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