Gigamedia (GIGM) is structured as a holding company that today runs two primary businesses, both focused on online gaming. The first business, labeled as Gaming Software & Services, is involved in the development and licensing of software and application services to allow online casino and poker applications, mainly targeted to continental Europe. This software allows the licensee to easily add transaction handling, multi-player matches, marketing, and data mining to the end application. This unit generates just over 70% of sales. The major licensee is Ultra Internet Media (UIM), which has developed Everest Poker and Everest Casino, two of the better-regarded online gambling operations out there.
The second business is Online Gaming and Services, currently contributing about 25% of sales. There are two subsidiaries that comprise this unit. FunTown is a Taiwan-focused operation that offers a wide variety of games, from casual ones like Mahjong and online versions of popular Asian table games, to licensed "massively multiplayer online role-playing games" (MMORPGs) such as Warhammer Online (licensed from Electronic Arts - EA) and Phantasy Star (licensed from Sega). FunTown has nearly 12 million registered users. The other online gaming subsidiary is T2CN, a huge (over 70 million users), China-based business whose focus is on sports games.


Gigamedia historically also ran a number of Internet service providers, but divested the last of them in September 2008. Today all of its business is focused on online gaming, a growth industry with very attractive margins and relatively low capital requirements. This is reflected in some impressive financial numbers. Gigamedia runs operating margins in the low 20% range, and free cash flow margins come in at about the same levels. Returns on invested capital are strong, averaging over 20% on a standard ROIC basis, and close to 60% using a Magic Formula calculation. The balance sheet also is solid, with $97 million in cash and about $14 million in short term borrowings.

The company has delivered some impressive growth recently, with sales averaging 38% annual growth and operating profits 67% since 2004. There is still plenty of opportunities for future expansion. Everest has struck a deal to sponsor the World Series of Poker, ensuring it substantial visibility. There have been rumblings of the U.S. easing restrictions on online gambling, which would open a whole new and lucrative market for the company. Casino offerings are being expanded, with applications such as a European sports book recently added. On the online gaming side, Gigamedia has a good relation with gaming powerhouse EA, which could lead to additional exclusive licenses for hot games, a major competitive advantage in this business. Online gaming is a huge phenomenon in Asia, and Gigamedia is well positioned to capitalize on it. Even in a weak economy, FunTown and T2CN continue to perform well. There also exists some short-term competitive advantages here, as exclusive licenses lock users in while they are stuck on a particular game.