Why Multimedia Games Holding Company Inc Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Multimedia Games (NASDAQ: MGAM  ) were no fun for investors today, falling as much as 18% after the company posted disappointing EPS guidance in its quarterly report.

So what: The maker of gaming and video-lottery machines actually beat earnings estimates in the quarter with a per-share profit of $0.32 against expectations of $0.26, while revenue was essentially in line with the consensus, growing 22% to $50.4 million. The company finally entered Nevada in 2013, the country's largest gaming market, which helped boost revenue to new records. Still, its revenue guidance for fiscal 2014 of $217 million to $223 million skewed lower than the consensus of $221.3 million, and its EPS outlook of $1.23 to $1.27 missed the Wall Street view of $1.30.

Now what: Lower projected unit sales prices seem to have put a damper on margins. Multimedia Games sees an average selling price of $16,500 to $17,500 in 2014, compared to $18,121 in 2013, due to a change in sales mix as it expects its higher-margin TournEvent units to comprise a lower percentage of units sold. Still, the company sees overall unit sales increasing 38% to 49%, and revenue growth 15% to 18%. With increases like that and gaming laws becoming looser in New York and other locales, Multimedia Games seems to have long-term steady growth ahead of it. Today's drop looks exaggerated.

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  • Report this Comment On November 14, 2013, at 3:43 PM, wcpjr wrote:

    MGAM has come a long way from Class II bingo machine maker to the Indian casinos.

    Getting licensed in LA, then NV makes them a real vendor with Class III machines.

    Aristocrat was almost a non player until it was licensed by NV. They started Penny SLOT business. Now all the slot manufacturers have PENNY SLOTS.

    The big boys may pass on MGAM, as BLY, IGT, SGMS, ALL.AX, KNM, etc will not give up market share without big fight.

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