Game Digital Plunges as Black Friday Price Cuts Hurt ProfitPaul Jarvis
Game Digital Plc, the U.K. video-games retailer that relisted in London last year, plunged after warning that full-year earnings will miss estimates due to price cutting inspired by Black Friday.
The shares tumbled as much as 50 percent, briefly taking them below the 200 pence at which they were sold in a June initial public offering. The stock was down 30 percent at 243 pence as of 2:12 p.m. in London, slashing the company’s market value to about 413 million pounds ($630 million).
Black Friday discounts at supermarkets and online sellers such as Amazon.com Inc. spelt trouble for Game. To defend its market share, the retailer also lowered prices, while putting higher-margin games into bundles with less-profitable consoles.
“We invested margin in offering gamers competitive product propositions through the bundling of games with hardware and reduced pricing, to recruit as many new generation customers as quickly as possible,” Chief Executive Officer Martyn Gibbs said in the statement.
The warning comes a little more than a year since Microsoft Corp. and Sony Corp. introduced new consoles, stoking demand for games and a battle for business. Microsoft cut the U.K. price of the Xbox One for a second time in September as it seeks to close the gap with Sony’s PlayStation 4.
Lower console prices led to a 25 percent increase in the number of units sold by Game Digital in the U.K. during the 11-week period ended Jan. 10. Discounting also caused lower sales and margins, the company said late yesterday. Group revenue fell 5.4 percent at constant exchange rates, according to the company, which also runs a business in Spain.
Not all video-games retailers are having such a difficult time. GameStop Corp. of the U.S., the world’s largest such business, yesterday reaffirmed its earnings forecast as sales of new titles such as Call of Duty: Advanced Warfare and Grand Theft Auto V helped counter waning demand for consoles.
Game Digital said underlying earnings before interest, taxes, depreciation and amortization for the 52 weeks ending Aug. 1 will be “broadly in line with last year’s 51.3 million pounds. That compares with the 63.7 million-pound average estimate of three analysts compiled by Bloomberg.
Analysts at Canaccord Genuity cut their revenue projection to 919.9 million pounds from 955.9 million pounds, according to a note today.