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What's in the Cards for Turtle Beach (HEAR) in Q3 Earnings?

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Turtle Beach Corporation (HEAR - Free Report) is scheduled to report third-quarter 2018 results on Nov 6, after the market closes.

The company pulled off an average positive earnings surprise of 727.78% in the trailing four quarters, beating estimates thrice. Notably, in the last reported quarter, it posted earnings of 40 cents, which beat the Zacks Consensus Estimate of loss of 2 cents.

Let’s see how things are shaping up for this announcement.

Factors to Affect Q3 Results

Turtle Beach believes that its strong share in gaming headset market along with efficient operational execution and robust demand for console gaming headsets would drive its bottom line in the upcoming release. The long-term prospects of the company remain strong with existing growth opportunities in console gaming industry. For instance, its revenues recorded a sequential increase in the second quarter, primarily on the back of growing strength in the console gaming industry and headset market. We believe these positives will stoke top-line performance for the to-be-reported quarter as well.

Turtle Beach has launched several premium products, which are expected to drive growth. Also, the company has successfully grown its market share in the entry-level price category products. In this regard, within a few months of its launch, the company’s Recon Chat Headsets product turned into the best-selling chat headsets on both Xbox and PlayStation that eventually helped it to expand its share to about 50% of the below $50 price tier. As a matter of fact, Turtle Beach has an interesting lineup of product launches, which it believes, will stoke growth in the quarter to be reported. 

Moreover, the company focuses on investing in potential markets to drive long-term growth. For instance, it is looking to invest in PC gaming headsets and new geographies including China, where it believes it has long-term potential. Moreover, the company’s plan to evaluate other gaming product areas in which it can leverage its brand, will strengthen its long-term growth potential.

Based on the positive trends of the industry, the company expects net revenues to grow 81% to about $65 million compared with $36 million reported in the year-ago quarter. Turtle Beach expects to deliver sustainable increase in earnings and free cash flow, driven by benefits from long-term strategy of investment in high-growth programs. These investments are expected to support its organic growth and deliver premium margins.  

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Turtle Beach in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: Turtle Beach has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 77 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Turtle Beach sports a Zacks Rank #1, which increases the predictive power of the ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

NetApp, Inc. (NTAP - Free Report) has an Earnings ESP of +0.83% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMETEK, Inc. (AME - Free Report) has an Earnings ESP of +0.71% and a Zacks Rank #2.

Arista Networks, Inc. (ANET - Free Report) has an Earnings ESP of +2.20% and a Zacks Rank #3.

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