GigaMedia (Nasdaq: GIGM), the online casino operator from Hong Kong, just revealed yet another winning hand.
Second-quarter GAAP earnings clocked in at $0.19 per share on $52.5 million in revenue. While that's an impressive 31% jump in sales, the net income line only gained $0.02 per share from last year, or about 12%.
Tempering the bottom-line growth were hefty operational expenses such as the company's development budget for new and improved money-making games, which grew at a higher rate than the top line. Of course, that's the name of the game for a fast-growing tech-oriented business -- evolve or die.
GigaMedia is investing in its infrastructure to continue capturing share in the gambling market. Its venture into sports betting, which will act as a crossover between poker players and sports bettors, will launch in the fourth quarter and is expected to generate strong growth.
The company is well-connected, too. Electronic Arts (Nasdaq: ERTS) has partnered with GigaMedia to distribute its NBA Street basketball game in China, where hoops is the most popular street sport. The promising Warhammer Online role-playing game will also be also sold under GigaMedia's wing. Even Disney (NYSE: DIS) is in on the game, because its ESPN broadcasting subsidiary covers the World Series of Poker -- and GigaMedia's Everest Poker is a major sponsor of that event.
There's plenty of competition for all those increasingly wealthy gamblers, including local heroes like Shanda Interactive (Nasdaq: SNDA) and NetEase.com (Nasdaq: NTES). But the target demographic here is so huge and prone to gambling addictions (witness the Japanese Pachinko craze if you want evidence) that all of them, plus the occasional Western upstart in the area, should be able to grow like the weeds in my backyard for many years.
Strike while the iron is hot. That's exactly what GigaMedia is doing, and also why the sales look way more impressive than the earnings. These guys are sowing the seeds of massive growth right now, and will reap the rewards in the form of huge earnings and cash flows in later years. Maybe your portfolio should pick up some Cantonese today.
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