GAME:CC - Engine Media (GAME)(GAME:CA) - Shareholder Friendly Actions

Favorable Q2 results. Fiscal Q2 results reflected the sale of Eden Games. On a comparable basis, treating Eden as discontinued operations, Q2 revenues grew a strong 20% to $9.26 million, with an adj. EBITDA loss of $6.4 million, better than the year earlier loss.Re-focusing the business. Following the sale of Eden Games, the company is expected to streamline its businesses and lower its cash burn. Management indicated the company may divest of UMG and Windview. We view this potential move favorably as it will allow management to tend to its strong growth oriented businesses, sharpen the focus of the company, and put the company on a path toward positive cash flow by the end of fiscal 2023.Adjusting estimates. While management has not announced in detail all of its planned actions, in this report we have taken a preliminary estimation of the impact of anticipated cost cutting actions. Based on a scenario that the company spins off UMG and Winview, in combination with the sale of Eden Games, we believe that the company will swing toward adj. EBITDA positive in fiscal Q4 2023.Financially capable. As of February 28, 2022, the company had $5.3 million in cash and $5.3 million in long-term debt. With the subsequent sale of Eden Games, which netted $15.3 million in cash, the company appears to have sufficient cash to fund and invest in its growth businesses through fiscal 2023 and beyond.Compelling valuation. Near current levels, the GAME shares trade at 0.5 times EV to our fiscal 2023 revenue estimate. While we are lowering our price target substantially from $14 to $5 to reflect the substantially lowered valuations for its peers and for developmental companies, we believe that the shares offer a favorable risk reward relationship. We are maintaining our Outperform rating. Measures to reduce the company's cash burn are expected to be a significant catalyst toward higher stock valuations. Read More >>