- Razer, Singapore’s lifestyle brand for youth, millennials, and Gen Z gamers, believes it can be a huge player in the crypto space that is also supported by the same demographic.
- Founders Tan Min Liang and Li Kaling offloaded around 3% of the company in June 2021 to trigger a sell-off in the market. The stock appears to be oversold with Razer’s long-term growth story intact after a record-breaking 2020 due to strong demand for flagship products such as Razer Viper Ultimate, Razer Huntsman Mini and Razer BlackShark V2 Pro.
- Razer’s small but fast-growing digital payments business has massive potential as it continues to seek a digital banking licence.
Razer’s tripled-headed snake trademark is ubiquitous among the “For Gamers, By Gamers” cult as a sign of commitment to providing an eco-system of hardware, software, and services. But it may be time to change it up as the lifestyle brand for gamers has slithered into non-gaming territory such as the production of plushies to save trees, masks to battle COVID19, an AI robot with Clearbot to clean the ocean, and maybe even a toaster to turn on the heat.
Now, Razer is looking at the shrine of blockchain, crypto and decentralised finance (DeFi).
Days after Razer co-founder, CEO and chairman Tan Min Liang spoke about the potential of crypto during the company’s AGM on 2 June 2021, it put out a job ad looking for someone to lead its “strategy with regard to using blockchain as a platform for the company…(and) help explore crypto and DeFi as potential areas of expansion for Razer’s Services business.”
According to the ad, it will pursue blockchain, crypto and DeFi opportunities including partnerships and investments.
Razer, a brand for youth, millennials, and Gen Z, believes it can be a huge player in the crypto space that is also supported by the same demographic.
However, that equation isn’t so simple as a global chip shortage has pitted gamers and bitcoin miners against each other. Both camps are after GPUs – graphics processing units that are prized for their speed to render graphics and crunch millions of codes for crypto mining.
Of course, Min Liang has assured the Razer die-hards that it’s “mindful about its (crypto mining) impact on GPU supply for gamers, as well as the environment.”
In October 2020, Razer launched its #GoGreenWithRazer initiative as environment and sustainability issues gained increasing popularity with the woke crowd. At the same time, it also unveiled plushies of its beloved mascot Sneki Snek, where Conservation International can protect 10 trees for every plushie sold.
Razer then unveiled a 10-year roadmap to use 100% renewable energy by 2025, use only recycled or recyclable materials by 2030, and be 100% carbon neutral by the same timeframe. And launched USD 50 million Razer Green fund, zVentures, to invest in start-ups in the space, beginning with an investment into bamboo toilet paper marker, The Nurturing Co.
“Cult of Razer” Love-In Not Replicated By Investors
In theory, Razer’s environment and sustainability push should be lapped up by investors who increasingly place a value on ESG investing – making money while doing good by the environment, working through social issues, and ensuring proper corporate governance – for a sustainable future.
However, while Singapore’s Razer has built-up a loyal following, and Min Liang is a celebrated personality among gamers, the company is not receiving the same level of love-in from investors.
Primarily listed on the Hong Kong stock exchange, the stock fell substantially after Razer announced on 3 June 2021 that Min Liang and Lim Kaling, a founding investor of Razer, sold 275 million shares or around 3.09% of the company for “financial management purposes.” (The stock has gone further down south as part of the overall market rout in Greater China.)
The men sold out at HKD 2.405 (USD 0.32) each, which was at a 7.5% discount to where the stock was trading prior.
Management selling stock is seldom welcomed by the market as it may indicate a lack of belief in the company. But that’s unlikely to be the case here. After the separate private share placements, Min Liang and Kaling still retain a 33.76% and 23.06% stake in Razer, respectively.
So why did the market take umbrage and sent the stock tumbling after the placements?
Razer had been on a share buyback spree between 25 March 2021 – 12 May 2021. In less than 2 months, it undertook 23 buybacks and spent a total of around HKD 307.74 million on 115,338,000 shares.
And it had paid as high as HKD 2.81601 per share during that buyback blitz.
Following the founders’ share sales, Razer resumed its share buyback from 15 June 2021. It undertook 12 buybacks since and spent around HKD 128.25 million on 60,351,000 shares, paying as high as HKD 2.1645 per share.
While the company and its founders didn’t break any listing regulations, it sure left a bad taste as both camps had benefitted from their respective actions.
Technically, Razer’s share buybacks would’ve provided a floor to allow the founders to sell the stock at a certain price, even if at a slight discount as with most block trades. Naturally, the share price took a hit after the discounted sale, which then allowed Razer to snap up more shares at an even lower price.
It didn’t help that the buyer identities of the founders’ shares are unknown and don’t need to be disclosed either.
Stock Oversold And Growth Story Intact
But the recent sell-off may be overdone as Razer does seem to have all its
ducks Sneks in a row.
Razer’s valuations may seem steep with a PE ratio – stock price relative to earnings, where an extremely high ratio could mean the stock is grossly overvalued – of 91.79. But not if you value it as a high-growth stock. US-listed peer Corsair Gaming has a PE ratio of 18.73.
Credit Suisse and HSBC Global Research have a target price of HKD 3.5 per share for Razer.
On 14 July 2021, Razer announced that it expects to post a minimum 1H2021 net profit of USD 30 million, compared to a loss in the same period last year, on the back of higher than expected revenue growth and continued improvements of gross profit margin and operating expenses management.
2020 was a milestone year for Razer as it posted record revenues of USD 1.2 billion and unexpectedly reported a net profit of USD 800,000 for the first time as the world locked down and went online for the most part due to COVID19.
Razer’s hardware business, including the sale of mice, keyboards, audio devices, and laptops, surged 51.8% YoY to USD 1.08 billion due to strong demand for flagship products such as Razer Viper Ultimate, Razer Huntsman Mini and the Razer BlackShark V2 Pro.
Total users of its software platforms including Razer Synapse, Razer Chroma RGB and Razer Cortex grew to 123 million in 2020 from 80 million a year ago on the back of increased gaming, esports and livestreaming activities.
No doubt Razer’s continued sponsorship of top esports teams to showcase its products helped. Razer itself held its inaugural esports tournament – Razer Invitational – in May 2020. First in Southeast Asia, then Latin America and Europe, which saw over 66,000 participants, 26 million livestream views, and 565 million impressions.
In all, Razer generated a positive operating cashflow of USD 152.9 million in 2020. And is sitting pretty on a cash balance of over USD 600 million with zero debt.
It expects more of the same going forward, as it continues to push out new products either organically or through partnerships and acquisitions. In February 2021, Razer paid USD 8.5 million for Controller Gear, which specializes in creating licensed peripherals and merchandise for popular console brands including Xbox, PlayStation, and Nintendo.
According to market research firm Newzoo, the global games market is expected to generate revenues of USD 175.8 billion with 2.9 billion players in 2021.
Small But Fast-Growing Digital Payments Business One To Watch
A glitch in Razer’s outstanding 2020 was its failure to win a digital banking licence from the Monetary Authority of Singapore for its Razor Youth Bank. Nonetheless, Min Liang said it will continue its pursuit of a digital banking licence in other countries such as Malaysia and the Philippines, where it already has a digital payment presence, and other regions.
Razer currently has two digital payment services – Razer Gold and Razer Fintech – under its fast-growing services business.
As of 2020, more than 26 million people from 130 countries use Razer Gold – a global gaming payment service for over 34,000 entertainment titles from publishers including Activision Blizzard, Electronic Arts and Tencent.
Meanwhile, Razer Fintech’s offline-to-online digital payment network serves over 50,000 merchants from Grab, to Expedia, Starbucks and Uniqlo, and is supported by over 110 regional payment options.
In 2020, Razer Fintech launched several new initiatives including a partnership with Visa and Singapore-based Relay to introduce a pre-paid virtual Razor Card and the Buy Now, Play Later service, respectively, and saw total payment volume surged to USD 4.28 billion compared to USD 1.41 billion when the fintech service was first established in 2018.
“Razer Fintech is well-positioned to take up the challenge of addressing the unmet financial needs of the youths and millennials,” Min Liang said previously.
It needn’t just be the youths and millennials though.
Tim Ngui, a casual gamer who owns Razer products, is a strong advocate of the Razer Card – accepted by all 61 million merchants that take Visa globally.
“The usual credit card numbers and CVV codes are not imprinted on the physical card and are only visible to the user via the Razer app.
“In that sense, the risk of physical merchants or pickpockets copying credit card information is eliminated, making them more secure when compared to the traditional cards,” Tim told Bread News, adding that he has also introduced the card to his parents.
The potential of Razer’s fintech business can be immense.
If not, there’s still the toaster that the “Cult of Razer” has been asking for since 2013.