Monday, November 08, 2004

JAMDAT fizzles in first inning

JMDT reported earnings for third quarter after market today. The company reported results that were below analyst expectations (one analyst) which is certainly not a great way to come public. Risk of lower gross margins came to fruition combined with higher operating expenses resulted in operating margin dropping 300 basis points. Gross margins dropped due to higher percent of revenue coming from licensed brands. Licensor payments increased which is due to more licensed games being downloaded, which is troubling given large internal engineering capability. The risk of JMDT being a one-hit wonder with Bowling is coming to head sooner than expected. The licensed game gross profit contribution dropped signifcantly indicating that there is less than anticipated pricing leverage in company's control and competitive landscape is very cut throat. .

JMDT is now in 83 wireless carriers, in 39 countries with over 90 applications. But with all that said the company announced that only just over 20% of handsets in the U.S. are capable of downloading JAMDAT applications. Company also announced that they have just started in Europe and Asia which means don't look for too much absolute revenue from either of those markets any time soon. Company expects that almost all handsets will be capable of downloading games by 2007. Can you imagine the competitive landscape by 2007 for gaming applications? That is without considering gizmos like the PSP. Expect R&D expenses to increase as the company tries to come up with another hit like Bowling since only 20% of revenues contribute 80% of revenues.

JMDT provided guidance of 11.5% sequential revenue growth to $10.6M, where as street was looking for $12.5M revenue another disappointment. With shares already trading at very rich P/E, the lower guidance implying lower growth trajectory will certainly result in lowered estimates as well as the multiple placed on those estimates.

Few things that were clear from JMDT discussion were that gaming is no where close to being as proliferated as ring-tones and companies providing the capabilities to do mobile gaming such as QCOM providing the BREW platform are the ones making the real money right now (even though its a very small portion of their total revenues).

4 Comments:

Anonymous Anonymous said...

stock opened at $23.40 and is presently trading down almost $10 from yesterday's 32.35 close.

6:42 AM  
Anonymous Anonymous said...

they got work to do. stock price was rich when you introduced the company and some of the risk you pointed to are serious threats to these guys as we can see in the results.

7:18 AM  
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