Analysing the Market Share of Gaming Chairs – After Temasek Unit Buys a stake in Secretlab

Recently Temasek Holdings purchased a stake in Secret Lab for $200-$300 million. This got me wondering how they would price such a company in such a niche market (with relatively limited comps). Armed without the financial information of Secret Lab, I decided to try to find the Total Addressable Market for Gaming Chairs.

Market Sizing based on Age Group
A Gaming Advocacy Group, the Entertainment Software Association, which operates Gaming related Expos and lobbies on behalf of publishers and developers, mentions that the average age for gamers is 32. We take note that the report is focused on the American Gaming Demographics and might differ from the Global industry average. Regardless, we shall assume that the majority of gamers age from 15 – 45 years old. ¹

Let use fine tune our demographics for the sake of the Gaming Chair’s Market. One of the key customer characteristics is that they must have disposable income and thus should be working full time and not be in school. Gaming Chairs are not cheap. A proper budget gaming chair can cost $200 and reach all the way to $1500. Secret Lab’s most affordable chair is priced at $500. Hence, we shall assume that the majority of gamers who are able to afford a gaming chair to be from the ages 25-45.

A quick check on World Bank shows the world population stands at 7.594 billion people. Based on United Nations 2019 World Population Prospects, on Average 50% of the world is aged 25-64 while 16% of the world is aged 15-24. Unfortunately, this is not detailed enough to be helpful.

We shall rely on a Population Pyramid to determine the percentages of our target age group. From the link below, we have gathered that 29.8% of the total population is between 25 and 44. We shall add 1% and round up to 31%, to reach the total population between 25 and 45. Using 7.6 billion, that will be 2.356 billion people. Now that is a staggering figure. ²

Percentage of Gamers amongst Target age group
Now that we have the total population between 25 and 45. Let us find amongst them who are likely to be gamers. The ESA report mentions that 65% of adults play video games. Now this is not surprising, in fact I think that this is an understatement. On top of the PC, younger gamers play on a variety of platforms such as PS4 with their friends and on the Nintendo Switch. Older gamers mainly play through their mobile phones, especially with games such as Candy Crush, Pokemon Go and Gambling related games (Poker and Mahjong). Moving forward we shall use that 80% of people in this demographic play one form of video games or another. Using 2.356 billion people, that will give us 1.88 billion. (This 80% is purely a personal estimate)

However Gaming chairs are mainly targeted at people who play PC games. We shall refer to the Newzoo Global Game Market Report, which mentions that PC Games take 21% of the Global Games Market. Do note that this is a market value percentage and not a market volume percentage, which is really different. However, a 21% is a good estimate. I believe that many people use their computers for work and other leisurely activities such as going on Youtube, watching movies or video editing. Using 1.88 billion that will give us 0.395 billion. ³

Side note, Newzoo provides data and insights in Games and Esports. They partner with many well-known companies such as Google and Activision and have been around for a long while.

Segmentation amongst PC gamers
So we have a Total Addressable market of 395 million people, this is very interesting. Let us take a look at Gamer Segmentation.

I believe that a gamer that will spend money on a chair is an avid player, who not only loves to play games, but must also be interested in the hardware and software behind the games. They must be invested in the type of computer they use, and preferably spend money on high quality computers. Using a combination of the Ultimate Gamer and the Hardware Enthusiast we would obtain a figure of 22%. Personally, I feel that this is on the high side and expected it to be lesser than 10%. To be conservative, let us use 5%. With 395 million people that will give us 19.75 million.

In Summary, we have a Total Addressable market of 19.75 million possible Gaming Chair Customers. Not too shabby. Moving forward if we would like to get a Market Value Figure, we would just have to find the average prices of such gaming chairs. Maybe for next time.

Secret Lab Specific Analysis Portion
Secret Lab sells their chairs from $500 to $1400. Let us assume that their average price is $700. We also have to assume their market penetration rate. Taking a look at Secret Lab’s Regions List as well as the Delivery portion of their FAQ, it seems to cover the whole globe. From countries close to home such as Thailand and Hong Kong all the way to the US and countries in Europe.

Secret Lab is relatively new, having started in 2015 unlikely key player DXRacer who started in 2006. The market is moderately fragmented with around 10 key players in the market. Let us say that Secret Lab has 3% market share. This is another personal estimate, which I feel is very neutral. ⁴

This would give Secret Lab a 19.75 million X 3% market share X $700 = $414.75 million in sales yearly. Now this is totally off as the value is too high. Double checking, in 2017 Secret Lab won an award which caps their yearly revenue at $20 million. In 2019, they are on track to do $100 million in sales. This growth is truly impressive and commendable; however this is far off from our $414.75 million projected revenue.

Where could we have gone wrong?
> We assume that 80% of people aged 25-45 play video games.
This could be a much lower %.
> We assumed that 21% of gamers play PC games.
> We assumed that 5% of PC gamers will be willing to buy a premium gaming chair.
This could be a much lower %.
> We assumed Secret Lab’s market share of 3%
> We assumed Secret Lab’s average sales of $700.

If we reduce the two underlined percentages above, we will be able to improve our analysis of this particular market size and get a better understanding of the market. Heliconia Capital Management, a unit of Temasek Holdings, priced the company at $200 to $300 million, which is just 2 to 3 times sales. This is a steal, for a company that will not only gain more market share but is within a growing industry. With Secret Lab being chosen for international gaming tournaments like Riot Games Inc’s League of Legends, this chair is unlikely to stay a secret for long.