E-sports might yet save GAME Digital

Despite full-year earning results missing on profits, GAME Digital’s Belong stores show there still could be opportunity in the UK retailer.

What happened with the latest earnings results?

Back in January, GAME Digital plc’s (GMD.L) share price got crushed after the retailer reported disappointing results for the first half of the financial year and cited ‘tough’ trading conditions. On 1 January the stock stood at £60.40, but by the end of the month it was languishing at £35, a 42% fall. Gross transactional value had also fallen 18.3%.

Final results revealed last week for the 52 weeks ending 28 July 2018 showed revenues of £782.3 million. While this was on eerily par with the previous year’s £782.9 million, profit dipped 4.3%. The retailer said an increase in low margin hardware and digital sales and a falling pre-owned market were factors.

So what?

Many would have expected GAME to have been annihilated by ever-dwindling physical games sales. Yet this isn’t happening.

Instead, there was good news for GAME’s events and e-sports business which delivered a GTV of £12.2 million, up over 40% on the year. This has been propelled by the retailer’s Belong stores where gamers can pay-to-play the latest releases with friends.

Cost cutting exercises have also helped the company bring its pre-tax loss down from £10million to £7.4million.

Promisingly, full-year underlying earnings (EBITDA)  rose by over 25% to come in at £10.1million.

GAME’s share price received a much-needed boast jumping from £28 to £31 after these results came out, indicating investors have some faith that the move into e-sports is working.

GMD.L_YahooFinanceChart
Source: Yahoo Finace, 12.11.2018

Now what?

Developing Belong could see GAME take advantage of social gaming and be one of the few UK high-street chains that won’t be destroyed by e-commerce.

“Belong remains core to our transformation strategy and we continue to expand the business through the opening of larger gaming arenas while improving our GAME Retail offer to fully capitalise on the strong growth potential in the e-sports market,” said CEO Martyn Gibbs in a statement.

35 Belong stores were planned by the end of the financial year. Despite only 21 materialising, these locations have room to expand the number of desks available.

“The reason for [the 21 Belong stores] is really positive. The reality has been we need far bigger arenas than we had originally thought,” Gibbs told gamesindustry.biz

If GAME can continue to grow Belong and reduce losses then there might be room for further growth in its share price, even if it never returns to the year’s highs.