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Console owners help drive profit jump at Game Digital

Gaming fans at Call of Duty launch (Source: Game Digital)

GAME Digital said a rapidly growing population of Xbox One and PlayStation 4 console owners helped the video games retailer post forecast beating full-year profits.

Demand for the latest generation of consoles has cooled and their average selling price has dropped since their initial launch two years ago. But a strong performance in accessories, new blockbuster games titles and other console-related content has helped to offset this, the company said.

Pre-tax profits jumped to £25.8m in the year to 25 July, up from £7.3m a year ago. However, the 2014 profit figures was slightly distorted by £8.4m of exceptional costs relating to its stock market comeback.

Game’s revenue increased by 0.6 per cent to £866.6m, which was also fuelled by a surge in higher margin pre-owned mobile phone and tablet sales – up 100 per cent.

The company allows customers to trade-in products in return for credit and has a 39 per cent share of the UK’s physical pre-owned market, selling everything from second hand consoles to smartphones and Beats headphones.

It is also reaping the benefits of its expanding eSports and gaming events business after buying Multiplay for £20m in March. Over 36,000 tickets were sold at its Insomnia gaming festival in August, making it the company’s largest ever event. 

Martyn Gibbs, chief executive, said: “Game had a strong second half to the year and delivered sales and profit growth for the full year as we capitalised on our leading positions in the fast-moving video games industry.”

Game has a roller-coaster year since re-listing on the London stock market last June, two years after being rescued out of administration by US activist hedge fund Elliott Advisors.

After ending the year as one of the most successful floats, the retailer shocked investors by issuing a profit warning in January, blaming fierce competition in the run-up to Christmas.

However Gibbs insisted the company was “well prepared” this year for next month’s Black Friday event and the peak Christmas season, with a strong, specialist customer offer across all product categories.

Shares in the company, which are down 44 per cent in the year-to-date, rallied this morning on the slightly better-than-expected figures but are currently flat at 200p.

Canaccord Genuity analyst Nigel Parson kept his “buy” rating and underlying expectations for 2016 unchanged but said he expects the company to invest more in its Multiplay business and cut his profit before tax forecast to £38.9m from £42.8m.

“It aims to add scale to Multiplay, which will depress short-term profits but should support growth aspirations as the console cycle starts to turn down from 2018,” he said.

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