Executive Summary
Guillemot Corporation is a producer of racing wheels and joysticks under the Thrustmaster brand name. It's historically lagged behind Germany's Endor and China's Moza. But with the release of a new generation of products, including the direct drive Thrustmaster T598 in October 2024, Guillemot is likely to regain some of the lost market share. Other catalysts include the release of Microsoft Flight Simulator 2024 and My First Gran Turismo in November/December 2024, and the new partnership with Chinese e-commerce website JD.com. Alt-data suggests strong 4Q2024 earnings for Guillemot. Fourth quarter sales numbers will be announced on 30 January 2025 and full-year earnings on 26 March. The stock trades at 7x EV/EBIT on normalized numbers and with double-digit industry growth in the sim racing category of gaming peripherals.
Introduction
Guillemot Corporation is a French niche manufacturer of video game hardware, specifically gaming accessories such as joysticks, racing wheels and gamepads. It's run by the Guillemot brothers, who also control video game developer Ubisoft. However, the two companies remain mostly separate, except for a small stake that Guillemot Corporation continues to hold in Ubisoft.
The company started as a computer retail store in 1984 in Brittany, France, and then moved into distribution of IT products. In 1999, it undertook two major acquisitions: American gaming peripherals m aker Thrustmaster and graphics card company Hercules. In the 2000s, Guillemot Corporation suffered a downturn in revenues due to intense competition in the graphics card segment. It was eventually shut down. But it continues to have a large presence in hardware peripherals.
Today, Guillemot sells products three main brand names:
Thrustmaster: Gaming peripherals for racing games, flight simulators, truck simulators as well as more casual games. It has a 60% global market share in joysticks and is neck-and-neck with Logitech when it comes to racing wheels and related accessories. Most of Thrustmaster's products are in the $100-500 segment, whereas German competitor Fanatec (Endor) dominates the $500-1,000 segment.
Hercules: DJ equipment, specifically controllers that can be used with a laptop and DJ software. The controllers feature jog wheels for track manipulation and scratching, volume controls, knobs for sound effects. Hercules remains a small company in a market dominated by the Pioneer brand.
Djuced: A freemium DJ software suite that helps users mix songs, add beats and effects etc. The paid version allows for recording and syncing with Hercules hardware products.
In 2023, roughly 88% of revenues came from the main Thrustmaster brand. The Hercules segment has barely been profitable in the past few years and even made a loss in 2023. So I'll focus the rest of this write-up on the outlook for Thrustmaster.
Thrustmaster focuses on sim racing products. Users attach a wheel to a frame or a table and pedals on the floor to simulate the experience of driving a car. The racing wheel is attached to a wheel base with an electric motor that applies mechanical force to the wheel, simulating bumps, car movements, tire pressure, etc. The set-up creates an immersive experience that attract gamers and even professional race drivers to the hobby. Games can be played on either PC or consoles such as the Xbox S/X or the PlayStation 5.
Sim racing a growth industry, driven by technological improvements on both the hardware and software side. E-sports is slowly taking market share from actual sports. The launch of F1 Sim Racing events from 2018 onwards has further attracted attention to the hobby. The growth in the number of Google search queries suggests that interest in sim gaming is growing exponentially.
The number of unique drivers on iRacing has continued to be strong, despite the return to normal after the COVID-19 pandemic:
Here is a full list of Thrustmaster's sim racing products: https://shop.thrustmaster.com/en_gb/products-steering-wheels.html. And here is a full list of Thrustmaster's flight sim products: https://www.thrustmaster.com/en-gb/universe/flying/
Guillemot sells its products primarily through third party retailers, as well as on official stores on e-commerce platforms such as Amazon and Mediamarkt. Endor and Moza have taken market share through a direct sales model, but with Thrustmaster launching their e-commerce website in 2022, the sales model is likely to shift somewhat.
The products themselves are excellent. Best-selling Thrustmaster products such as the T248, T300 and TX series racing wheels have Amazon review scores from 4.2 to 4.5. Here are some user comments that I think are representative:
“Absolutely brilliant set. Paired it with the Thrustmaster TH8A shifter. Using with Forza 6 on Xbox One, and Project Cars on Xbox One” - Thrustmaster TX RW Leather
“Exceptional steering wheel. Very sensitive and perfect in curves. Highly recommended” - Thrustmaster TX RW Leather
“Trust me, the TMX wheel is a huge step forward in the world of sim racing for those of you coming from non-force feedback wheels like I did.” - Thrustmaster TMX Racing Wheel
“I only have experience with one other driving wheel, but it wasn't force feedback. This one gives you a much more realistic experience.” - Thrustmaster TMX Racing Wheel
Amazon’s #1 best-seller in the PC Game Racing Wheels category is currently the Thrustmaster TCA Officer Pack Airbus Edition. The Thrustmaster TH8A shifter is on spot #8, Thrustmaster TCA Sidestick Airbus Edition #10, Thrustmaster TH8S Shifter #11 and Thrustmaster T300 RS GT #12. On Walmart’s Racing Wheel category best-seller list, Thrustmaster T80 Ferrari 488 GTB Edition occupies spot #3.
It's also worth noting that on PlayStation's website, it recommends three brands for PlayStation-compatible racing wheels: Fanatec, Thrustmaster and Logitech.
Guillemot Corporation's other key product is joysticks for flight simulators. Thrustmaster is a clear leader in the market through products such as the HOTAS Warthog and TCA Sidestick Airbus edition. These joysticks will typically have a main stick to control the movement of the plane along with a separate throttle control slider. The joystick market is growing closer to single digits but also benefitting from improved graphics and the more immersive experience of the latest flight simulators.
The reviews for Thrustmaster's joysticks are excellent as well with review scores of 4.4 to 4.6/5.0. Some comments from buyers on Amazon:
“This isn't your average flight stick. Oh no. This is a flight simmer's dream.” - Thrustmaster HOTAS Warthog
“Going from the logitech/saitek x56, complete game changer! Does not drift, complete metal, and will give you the best of the fighter jet experience.” - Thrustmaster HOTAS Warthog
Why now?
Guillemot enjoyed incredible growth during COVID-19 as stimulus checks were spent on consumer electronics and physical activites were replaced with virtual. 2023 was an incredibly weak year for the company with inventory destocking causing orders to grind to a halt. But fundamentals finally seem to be heading in the right direction.
In early 2024, Thrustmaster launched its next generation of racing wheel products. First in line was the Evo Racing 32R leather wheel in 2024, which is a premium $300 product with excellent build quality and feel. Then, in October 2024 came the T598 racing wheel and wheel base, with direct drive technology. In the past, Thrustmaster had focused on belt- and gear-driven systems but from 2023 onwards it is now also offering direct drive alternatives, offering better tactile feedback during gameplay. And the price of $499 for a wheel, metal pedals and a table mounting clamp is competitive compared to much pricier options from Fanatec. The T598 wheel base is somewhat larger and the materials used perhaps not as premium. But it comes at a very competitive price. Here's a recent review from a well-known sim racer YouTuber. Customer reviews from Amazon makes it clear that the T598 might be a game changer for Thrustmaster:
“I’m happy to see a company like Thrustmaster pushing the envelope of technology and engineering to bring something entirely new to the market. This is the kind of aggressive and refreshing innovation we have not seen in the wheel market for a while.”
“No matter how you look at it, at this price, it’s hard to ignore how much value the T598 brings to the table. A PlayStation-compatible, direct-drive wheel, with a mature ecosystem, from a reputable manufacturer like Thrustmaster — that includes a decent set of pedals and a table mount — for less than $500, is a big deal.”
“In terms of price, the T598 undercuts its direct drive rivals from Fanatec and Logitech by a significant margin, and the axial motor really does deliver some unique performance characteristics. However, it’s obvious there were compromises which had to be made to get the wheel to this price point, and even though it is a solid offering, those compromises could be a hard pill for some people to swallow.”
When it comes to joysticks, an important catalyst will be the release of Microsoft Flight Simulator 2024 on 19 November 2024. It's available on both Xbox Series S/X and PC. IGN's review of the game was decent. Both Turtle Beach and Thrustmaster are likely to benefit significantly from the release. The number of Google search queries for Thrustmaster joystick spiked in late 2024 to the highest level since 2020, most likely due to the Microsoft Flight Simulator 2024.
Another positive event was the release of the free-to-play My First Gran Turismo on 6 December 2024 on both PlayStation 4 and 5. It offers players an introduction to the Gran Turismo series, with a limited number of tracks and a limited number of cars. The hope is that the game will lure users into buy other games in the series such as Gran Turismo 7.
On the partnership side, Guillemot signed a 3-year partnership with Chinese online reatailer JD.com in September 2024. The partnership will last for 3 years initially, offering a full range of products on the platform. Since Thrustmaster's products became available on JD's platform, it's been on the best-sellers list in both the flight and racing wheel categories. JD has an 18% market share in China's e-commerce market, so the contribution to Guillemot's earnings should be meaningful. And that contribution will start to be felt from 2024 onwards.
The positive recent developments are starting to be seen in alternative data sources. For example, the number of visitors to Thrustmaster.com spiked in late 2024. Partially due to seasonality, but also due to renewed interest in sim racing and flight simulators. Google search queries for the keyword Thrustmaster are up slightly, though still below 2021 levels.
In the first quarter of 2024, Guillemot's management team said that it expected the copmany to return to growth in 2024 and deliver a net operating profit.
The Group will leverage the growing momentum in terms of sales of its recently-launched accessories, and is preparing to launch major new Thrustmaster products in the second half of 2024. For fiscal 2024, the Group expects to return to growth and deliver a net operating profit.
In the second quarter of 2Q2024, management offered the following outlook:
The Group is set to launch a number of major new products in the fourth quarter of 2024, and will be leveraging both the new 2024 version of the game Microsoft Flight Simulator and its partnerships to increase its market share. The Group maintains its forecast of sales growth and a net operating profit for fiscal 2024.
The 3Q2024 outlook was equally positive:
The Group expects to gain market share in the fourth quarter thanks to new product launches, and maintains its forecast of sales growth and a net operating profit for fiscal 2024.
In other words, we should be expecting second half earnings to be much stronger than the EUR 3.6 million earned in net operating income in the first half of 2024. 9M2024 revenues grew +11% year-on-year and I expect an acceleration for the full year.
Valuation
In the 2024 interim report, Guillemot had EUR 19.6 million in net cash. But if you add Guillemot's 443,874 shares in Ubisoft, total net cash and financial assets add up to EUR 25 million.
Share price EUR 7.8
Shares outstanding 14.8
Market cap EUR 115 million
Net cash EUR 25 million
Enterprise value EUR 91 million
The core business earned the following operating profit over the past 5 full fiscal years:
2018: EUR 7 million
2019: neg EUR 2 million
2020: EUR 24 million
2021: EUR 33 million
2022: EUR 34 million
2023: EUR 3 million
LTM: EUR 10 million
Now, COVID-19 was clearly a historical outlier. But at the same time, the sim racing industry is growing in the mid-teens. Assuming some market share loss to Moza in the intervening period, 10% top-line growth seems reasonable from the 2019 starting line. Normalized revenues are probably around the EUR 143 million mark. Guillemot earnt a 8-10% operating margin in normal years, more or less in line with Logitech and Endor's non-COVID levels. At a 9% operating margin you'd end up with an EBIT of EUR 13.
EV/EBIT = 91/13 = 7x. I'd conservatively value Guillemot at 12x, which implies an intrinsic value of EUR 12/share. The underlying growth of the industry, the net cash balance sheet and the strength of the Thrustmaster brand name gives me comfort that it's not going to end up becoming a melting ice cube.
Potential privatizations?
Guillemot Corporation owns 443,874 shares of Ubisoft Entertainment. These shares are currently trading at EUR 11.2, suggesting a total value of about EUR 5 million. Ubisoft is one of the larger video game developers in the world, famous for its Assassin’s Creed, Far Cry, Prince of Persia and Tom Clancy series of games.
In December 2024, Tencent and the Guillemot family was said to consider a management buy-out of Ubisoft, which could lead to a nice takeover premium. In January 2025, Tencent and the Guillemot family was instead moving towards creating a new venture, carving out certain Ubisoft assets to maximize the value of the company. In any case, it's clear that Ubisoft is sitting on valuable assets, and that value could be unlocked in various ways.
Some investors are speculating that Guillemot Corporation could be taken over, too. The Guillemot family owns 70% of the shares. Since April 2024, Guillemot has started buying back shares in modest amounts from EUR 5.5/share to EUR 6.5. Chairman and CEO Claude Guillemot and his brothers have also been accumulating shares, increasing their aggregate position by 1.2 million shares (8% of shares outstanding). At a minimum, this seems to suggest that the brothers see value in the stock at the current valuation. And might even be looking to take the company private at some point.
Risks
Guillemot's execution has been less than ideal. The competition from Moza and Endor has been real. However, Endor has now gone bankrupt, and it's unclear whether Corsair's ownership will lead to greater or less competition. But with the introduction of the direct-drive T598, Guillemot's product portfolio looks decent. I expect management's prediction about near-term market share gains to end up correct.
It's also the case that revenues are lumpy in the industry. It's therefore hard to estimate mid-cycle earnings, and what multiple to apply to those earnings. That's why I've erred on the side of caution in the above valuation exercise.
