Do you have money to burn?

[Gabriel013]

Thought this may interest the older, financially orientated gamers here:


Taken from www.fool.co.uk (UK Financial website)
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Computer Game Investing Hell

By Stuart Watson (TMFTiger)
March 4, 2004


Computer game companies have been long been a graveyard for UK investors. Shares in Rage (LSE: RGE) have caused the most heartbreak recently. They peaked at 68p in March 2000 but were suspended at 0.3p this January before the company went bust.

Other games developers have also struggled. Warthog (LSE: WHOG) floated at 35p in February 2001 and is now just over 2p. Argonaut (LSE: AGT) listed at 96p in March 2000 - now it trades at 10.25p. Empire Interactive (LSE: EMP) has fallen from its 60p flotation price in July 2000 to 11p.

Those firms that have been around a little longer have fared somewhat better. SCi Entertainment (LSE: SEG) is back at the price it floated at in August 1996 while Eidos (LSE: EID) has more than doubled since it joined the main market in October 1995. However, neither of them have paid a dividend. In fact, both have gone back to their investors twice to ask for more cash.

Having said all that, Eidos shares were starting to look attractive. Although it hasn't been paying a dividend, it does have £58m in its bank account. Strip this out from its current market value of £185m, and investors are being asked to pay about 12-13 times expected post-tax profits. Not bargain basement but certainly worthy of attention.

This morning's interim results weren't too bad either. Cost-cutting helped profits improve by 30% despite a hit from the US dollar and disappointing sales from a couple of titles. The firm is no longer dependent on the Tomb Raider series and the three years of losses in the early part of this decade seem like a distant memory.

Unfortunately, Eidos is also making an acquisition, spending £21m cash upfront and up to £5m later on. The target is a company that barely broke even on sales of £8m last year. Nooooo! Although it did make profits of £4m the year before, this price seems toppy to say the least. With nearly half of the cash pile wiped out in a single stroke, Eidos shares have now lost most of their value attributes.

Investors look as if they'll be stuck in computer game investing hell for a while yet. The industry is a good example of how it can be winner-takes-all in the case of technology companies, with UK companies often lacking the scale needed to prosper over the long term. There have been gains to be made from this sector in the US though. For example, Electronic Arts (Nasdaq: ERTS) is valued in excess of $14b and its shares have risen almost a hundredfold since their IPO back in 1989. It's highly unlikely that any company over here will even come close to that performance.