Gigamedia growth on track

Posted by Tim

August 12, 2008

Gigamedia Ltd (GIGM: 6.63 0.00 0.00%), purveyor of online gambling and games, has reported reasonable earnings growth for the historically slow 2nd quarter. The quarter’s results came in a little below the record 1st quarter but were up nicely from Q2 of 2007. First a quick recap of the year over (YoY) year results:

Revenues up 31%.
Net income up 11% to 19¢ per share, handily beating the consensus estimate of 17¢.
Flagship Everest Poker up 26%.
Everest Casino software up 34% and 10% QoQ.
Asian games up 67%.

The Europe oriented Everest Poker was slower in Q2 vs. Q1 due too the traditional summer season slowdown combined with competition from the very popular Euro Cup soccer tournament. The 3rd quarter is also part of the summer season and management is not expecting revenues and profits to really take off again until the 4th quarter of 2008.

There are a couple of very positive developments in the short term window. Gigamedia has found a technical partner to help them set up sports betting in Europe. This new line of business should kick off in the 4th quarter, this year. The company also launched their Asian real money games at the end of the just completed 2nd quarter. This first wave is aimed at Japanese gamblers and has been extremely well received. I was impressed to hear that some of the most active players are playing Pachinko up to 6 hours per day. Next up is pending approval to launch EA’s NBA Street game in mainland China. Basketball is very popular in China and Gigamedia management expects NBA Street to become the top online game there.

GIGM share price has come under severe pressure over the last 10 months and is now trading at around 18 times trailing 12 months earnings. This is a no debt, high cash flow business that will get back to 40-50% annualized revenue and earnings growth soon. Over the next 3 to 5 years I expect GIGM to become a multi-billion dollar market cap company from its present $700 million.

Note: I have a long position in GIGM.

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