GigaMedia Limited: Poised for Outstanding Growth

Aug.16.07 | About: GigaMedia Limited (GIGM)

The following is primarily a review and consolidation of the information from Gigamedia's (NASDAQ:GIGM) earnings conference call Tuesday (see conference call transcript). The main speakers for the conference call were Arthur Wang, CEO and Thomas Hui, COO/CFO.

Gigamedia is a Taiwan based company offering online gaming and gambling services. Their products are focused on European and Asian markets. They have a legacy ISP business which is winding down.

Highlights of Mr. Wang's comments:

  • He is very excited about their business with strong results in every business unit.
  • Year over year revenues were up 88% and operating income was up 119%.
  • Everest Poker is a high quality product with good growth and a 9 year history in Europe.
  • They expect stronger growth going forward to the 2nd half of the year.
  • A cash wager Mahjong was launched in the 2nd quarter and should have strong future contributions.
  • New "revolutionary" gaming products to be launched soon in the Japanese markets focused on traditional Japanese products such as Pachinko. This unit has "enormous potential".
  • Since startup in 2005 Gigamedia has grown to be the world's 4th largest poker site. They want to become the world's dominant gaming site.
  • With their positions in Funtown, T2CN and Infocom Asia they are positioned to become the first pan Asian online game platform.
  • Expect "growth on the order of several multiples over the next year".
  • Highlights of Mr. Hui's comments:

  • Quarterly revenues of $40.1 million up 88% year over year, and up 11% quarter over quarter.
  • Operating income of $10.1 million up 119% YoY and 16% QoQ.
  • 2nd quarter net income of $10.1 million or $.17 per share, up 19% from the 1st quarter.
  • Year over year quarterly income is up 139% if one-time gain on sale of $7 million is excluded from 2nd quarter of 2006.
  • Cash on hand increased from $48 million to $72.4 million, debt is $23.4 million.
  • Operation cash flow increased from $11 million in the 1st quarter to $17 million in the 2nd quarter.
  • Mr. Hui divided his discussion of business units into two areas. The first he called Gaming Software, which are the poker and casino sites for Europe. He noted these sites are now offered in 15 different languages. Revenue and net income for these units increased over 150% year over year. They accounted for $29.2 million of the revenue.

    The other area he called Asian Online Games. This area had revenue of $7.2 million. Revenue up 67% and net income up 84% year over year.

    My thoughts on the company:

    Share prices for Gigamedia peaked at about $16 back in May. It has recently traded under $10 before bouncing back up to around $12 with yesterday's news. The company has a growth rate of 80%+ a year and a PE of about 17. The company is just getting started in Asia, opening up in Japan and its established European business is doubling each year. I think this stock is a strong buy and will handily beat future earning projections.

    Disclosure: Author has a long position in GIGM

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