After reading ‘The Snowball’ by Alice Schroeder, I realised that Warren Buffett goes in big when he discovers a good potential business. Up till today my investment strategy have been too risk averse. Some season investors would say my investment style will not break the million dollar portfolio because my stocks selections are too safe. On my defense, I just need to find that hidden that Unicorn which lives behind the rainbow.
I may have found my ‘Unicorn Stock’ and it’s called “RAZER”.
Razer officially IPO on the Hong Kong stock exchange on November 2017 taking the ticker 1337 which means ELITE in the gaming world. Razer started off as a mouse and keyboard making company specifically for gaming by a start-up qualified Lawyer Tan Min-Liang of Singapore. Min is a couple of years older than me and I am pretty sure we grew up watching and playing the same video games back in the 80s and 90s. He is different from all of us as he manage to convert his video game passion into a business while the rest of us hang up our controller and mice for family time.
If I were to summarise Razer in three words, it would be
- Quality – All products are made to absolute novel innovation with low product recycle life. Its 1st Razer phone and 1st Death Mice took off like a storm.
- Different – As a very small company they are willing to try different approach to be different and making a mark.
- E-Sports – As my previous post on the future of E-Sports, Razer would be one of few companies to capitalise from this evolution.
Razer’s research and innovation team are located in California with all the other big tech players. Razer is the only tech companies which won best of CES 7 years in a row. CES is the Oscar Awards showcase exhibition for techs, gadgets and innovation products. Razer may not have won the 2018 awards this year. However Project Linda seems more promising that any of the other products released in the last ten years. Motorola have tried this but failed. This time Razer utilised the mobile phone as the trackpad and also the touch bar style. Apple have failed with the touchbar technology on their latest macbook pro, but Razer is doing it differently. The hybrid laptop is then a 13.3″ with 120hz, backup battery and hard drive storage. All the power and processor are harnessed on the phone. No other companies in the world are close to this concept yet.
2. Before IPO
Before going public, Razer have push its success from family loan and also loans from many rich families in Asia. From billionaires Lee Hsien Yang of Singapore, Robert Budi Hartono of Indonesia, Vincent and Robin Tan and Hong Kong Li Ka-Shing. Razer have close connections with many other rich owners in Asia from Ali Baba and Tecents.
Before IPO, Razer have bought out a startup company Ouya and the infamous LucasArts THX.
3. Razer Financials
Despite its impressive technology, Razer has not managed to turn profitable. Revenues have grown from $315 million in 2014 to $320 million in 2015 to $392 million in 2016 – translating to a rather modest 11.5% growth over the past three years. It had reported a profit of $20.3 million in 2014, but since then, losses have grown from $20.4 million in 2015 to $59.6 million in 2016. For the first half of the current year, revenues grew to $198 million, compared with $152.7 million a year ago. For the same period, losses have increased from $20.2 million to $55.5 million.
Till recently, Razer was venture funded with $125 million in investments from Accel, IDG Capital Partners, Intel Capital and LianLuo. Its last round of funding was held in February 2016, when it raised $75 million from LianLuo at. An earlier .
In November 2017, Razer raised $500 million by listing on the Hong Kong stock exchange at HK$3.88 (~$0.50) per share. Soon after listing, the stock had touched HK$4.81 (~$0.62). It is currently trading at HK$3.80 (~$0.49) with a market capitalization of HK$34.29 billion (~$4.4 billion).
4. Stock Analysis
As it stands today the Razer stock cost HK$3.78 which is equivalent to £0.35 or US$0.48. Technically it is still a penny stock level. Today the overall value of the company is HK$ 34bn or US$bn. Compared to its rivals, Razer is overvalued at its current price against it estimated sales figure.
Back in 2014 to 2015 Razer was estimated to be worth nearly US$2bn. Therefore the current value of the company have taken into account the success of the Razer phone. The phone cost US$699 and assume the profit margin to be at $300.00 Razer need to sell about 7.5 million units to make up the company value (In comparison to Iphone 7, which sold 353 million in their first quarter). We will find out in Q1 report if Razer have actually meet its expectation.
Razer are not profitable in the last few years is simply because a lot of money is being pumped into the research, development and manufacturing cost to turn around products quicker than their rivals such as Apple, Samsung, Logitech etc. As a small company to be ahead of its competition Razer have to employ the best technical team in the heart of silicon value to fine tune their new concept design into consumer products. Razer needs to churn out multiple products simultaneously to avoid being a one trick pony like GoPro and Fitbit. To grow a technological business against these giant it cost money to also market and advertise in the modern social media world. So please include that value of the company before investing.
With Project Lydia and Valarie production in the works, there is a good chance these products will hopefully boost their capital value. These are still not priced into their share price. Hopefully with the IPO money, Razer can push production, increase the research and development concept team for future products.
One area investors are failing to value are the Razer Blade laptops. Macbooks and HP have been dominating the portable laptop market for years. The market for these macbook and laptop are slowly been taken over my ipads and tablets due to battery life and lack of innovation. Razer Blade and also the project Lydia is the missing links which fills the gaps for these portable users from bloggers, gamers, businessman and students are looking for.
Please remember than Razer generates passive income from THX certified cinemas from all over the world too.
Razer’s main strength are not their products but the echo system they are trying to build.
In my humble opinion, there are still plenty of value for this Razer company to unlock and the future is very bright.
Warren Buffett once said that a good business is one that can be run by a monkey. In this modern society and business, I do not agree with statements like this anymore. Modern young, eccentric and dynamic entrepreuners seem to favour by the Wall Street
Facebook – Mark Zuckerberg
Amazon – Jeff Bezos
Tesla- Ellon Musk
Ali Baba – Jack Ma
Apple – Steve Jobs
Tan Min-Liang have a distinct similarities with these already successful multibillionaire CEO founders. He started his career young, knows his business and his competition very well, not afraid of change and drives innovation. Among these CEO, he would be closest to Steve Jobs, who is a meticulous where he needs to approve each and every product before release.
He is also a modern CEO who uses social media very effectively. There are plenty of followers who worships and tattoo his logo and face onto their bodies! He speaks to his followers and answer queries quickly. During the launch of the Razer Phone, there were complains about the poor camera software. Tan Min Liang jumped on the case and ensured his customers he would update the software and he did two weeks later and receive positive feedbacks for his quick turnaround.
6. Risk involved
Personally I am not expecting to see immediate multi-baggers from my Razer investments in the next 24 months. However I see a good long run business for at least 7 to 10 years where the E-Sports are starting to be established as main stream sporting events. There will definitely be volatility (drops) and perhaps long-term of stagnant periods investment in this shares.
Razer being listen on the Hong Kong stock exchange makes it very difficult to invest from overseas such as Europe and US. From my broker (Interactive Broker) I need to buy HK$ and buy in volumes of 1000 shares multiple which requires a significant capital before I can own these valuable shares.
7. Final Words
The future is Bright the future’s RAZER
Innovation = 5*
One Trick Pony = No
Future Business Model Potential = A+
Technologically Market Pull Business = A+
Not a Copycat Business but an Innovative company = A+
A market that will strive in China and USA = Bonus A+