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GAME Digital – claims “pleased” with performance over peak weeks, BUT…

By Steve Moore | Wednesday 18 January 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Previously writing on GAME Digital (GMD) with the shares at 67p, I concluded bearishly HERE. The following updates with the shares currently down further, at sub 60p, on the back of an “AGM Statement and Trading Update” announcement.

This reports gross transaction value down 1.6% in the 3 weeks to 7th January, taking the figure for the 23 weeks to that date to -6.3%. Additionally, these figures were helped by currency tailwind – with Spain gross transaction value +29% in sterling terms but +8.5% in local currency for the 23 week period, with UK retail gross transaction value -18.3%.

The company states “console gaming markets have continued to experience the impact of a further softening of demand as the industry entered its fourth year since the launch of the latest generation of Xbox and PlayStation consoles”, though it is “encouraged by the strong consumer anticipation which is building for the launch of the Nintendo Switch console in March this year, and beyond that to the launch of Xbox's Project Scorpio later in the year”. Also;

“The group continues to focus on the diversification of its retail businesses… including preowned phones and tablets, digital content, PC accessories, virtual reality devices and licensed merchandise. In aggregate, sales of these new areas grew 31% in the 23 week period to 7 January 2017 and contributed over 30% of group gross transaction value. The group's gross margins have continued to benefit from the shift to higher margin sales categories.”

The company also notes “encouraging early results” from its first in-store gaming arenas. Plans are now underway to extend the roll out, with incremental costs of “up to c£2 million” anticipated in the second half to support these openings.

However, these are early days in the ‘diversification’ and I continue to consider it far from certain that there is a sustainable proposition here. With the track record also not exactly inspiring confidence, I currently retain a bearish perspective; avoid/sell.

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