60 Seconds on Game Digital — a desperate evolution

July 25 2017

Transient Tech

  • Technology is darwinian and physical video games are facing extinction.
  • MP3 files heralded the decline of CDs. Now, Game Digital (GMD) can’t shift physical video games.
  • Although GMD is moving towards a growth area in esports, this is because its hand has been forced.

GMD: Short leases & Esports

  • Operationally, GMD is in a precarious position. It is, however, financially stable and cash generative, with a healthy balance sheet (£69m net cash as of January).
  • GMD has ‘over 220 lease events to manage by the end of 2018’
  • So even if it is desperation and not inspiration that drives GMD’s bold pivot towards esports, at least it has a solid financial base from which to do so.

Game Digital (GMD): falling sales, existential crisis?

  • GMD shares have fallen by more than 92% from its 2014/2015 high of 360p to just 26.75p today.
  • As physical game sales decline, GMD is left with a lot of excess space to fill.
  • Esports could be the answer but it might be too early. GMD is changing not because it sees an opportunity but because it has to fashion one.
  • This strategy is essentially an emergency manoeuvre with considerable execution risk. Newer entrants to this part of the market arrive unencumbered by legacy issues.
  • As such its shares represent an interesting punt but are arguably too risky to form a core holding in any portfolio.