Billionaire Jeff Vinik Resurfaces and Bets on Turtle Beach Corp (HEAR)

“Turtle Beach gained a strong market position in the US console gaming headset market before a protracted decline in electronic input costs as well as the advent of the one-product-fits-all “media headsets” associated with widespread inter-operability enabled by adaptors and bluetooth. With their product rendered nondifferentiable, their vestigial brand strength continues to erode as competitors have consistently outperformed in product offerings, consolidated in mergers, and rapidly gained US console headset market share associated with broader market reach synergies (PC/international headset companies). Turtle Beach now dominates the lowerend US console headset market, a highly indefensible competitive position, facing pressure from above as highend competitors move “down-market” and a bottom floor as console manufacturers Microsoft and Sony bundle basic headsets with consoles and any mic-equipped headphones may be used as “gaming headsets”. Turtle Beach is consistently unprofitable while TB management has been unable to execute in the areas they identify as mission-critical to their success, namely penetration into PC and international markets. The gaming headset market is also relatively saturated – 40% of US gamers own a headset and headsets lack evolving/differentiating technology to warrant regular upgrades.”

Insider Monkey follows the stock picks of the 100 best performing hedge funds. Our flagship strategy identifies the best stock picks of the hedge funds every quarter. Since its inception in May 2014 through the end of August our flagship strategy returned 121% and outperformed the S&P 500 Index by 54 percentage points. At the end of the second quarter only one of these 100 best performing hedge funds had a position in HEAR and that position was worth only $616 thousand. Since we don’t see strong support from the best performing hedge funds (some of these are probably short the stock given the large short interest), we don’t think it is a good idea to follow Jeff Vinik and initiate a position in Turtle Beach Corp.