Here, the concern is probably that the current revenue and profitability levels are explained by COVID-19 and are somewhat temporary. Since the CEO also tempered expectations (no growth in 2021), the future is difficult to predict.
In principle, if one expects the business to shrink over the next 12 months, one wouldn’t want to get on board yet. Then again, Fractal has shown some evidence of profitable growth before COVID-19, so even if there is a setback now closer to 2019 levels, what kind of longer-term trajectory would one draw for this?
A neutral reaction is not surprising at all. But this could have been Huddly 2.0.
Well, it didn’t really take off this time. A small guess if it’s over or under -10% today.
edit. It seems that under the surface, the building blocks are still in place. Now, all sorts of troubles have occurred at once: component shortages, graphics card shortages, COVID, freight problems…etc. But PC gaming still has good future prospects. I’ll continue to hold.
At the same time, I must say that this year seems to be over at this point, and next year will bring new strategies. If it really takes a significant dip, I might consider adding more.
If I put these numbers here and everyone can guess based on that among themselves. It didn’t really take off, admittedly. Or it went in the wrong direction.
Looking at these, I just think that luckily for my own companies, Q2 is already behind us and went very well.
Yeah. Currently -33%. I remember seeing a toboggan run of similar caliber last at Rovio in 2018 (when I fortunately wasn’t on board…). Well, fortunately, I also have enough diversification, and other companies have good results behind them.
There’s no rush for potential additions yet, as the rest of the year will most likely be sluggish, and it’s possible that we’ll see even lower levels during the rest of the year. It’s worth starting to monitor whether the graphics card shortage eases, whether Fractal can move production from China closer to markets, etc.
This is not investment advice, but it’s an understatement to say that this is a really bad result. Huddly’s -30% change at one point was preceded by a damn good result compared to this.
If I owned it and wasn’t really well aware of the reasons why profitability is plummeting to zero despite adjustments, I would make a violent exit immediately. Those are huge relative and absolute changes.
Literally a flipped income statement. Previously, there was revenue, profitability, and no debt. Now, revenue is halved, profitability disappears completely, and millions of debt are added.
I concluded after seeing the results that the shares would be dumped first thing in the morning, and so they were. I took a loss, but it can’t be helped; I have to learn from it. This went in completely the wrong direction from what I expected, so I’m not staying on board to wait for better times. Should management have perhaps issued a profit warning for this?
Yes, and this was also partly why I quickly dumped my shares. This (not meeting this year’s guidance) was surely known much earlier, but for some reason, they wanted to wait until the earnings report before telling the bad news to the owners. This kind of poor IR (Investor Relations) work almost makes me angry, so I probably won’t ever become an owner again
About the results: absolutely abysmal compared to expectations. My own expectation was an EBITDA (32MSEK) similar to Q1, but it ended up being less than a tenth of that (2MSEK).
Well, the earlier guidance was something like “no growth” or similar. And, my own most extreme bearish scenario would have been a return to 2019 levels, but I would have expected profitability to have been maintained at a corresponding level, adjusted for listing expenses.
Hannes Wallin, CEO and Founder of Fractal comments:
”The lower net sales in the quarter is primarily due to the tougher comparative figures, with growth
in the second quarter of 2020 exceeding 100%, but also impacted by factors related to the shortage
of graphic cards and delayed shipments due to outbreak of COVID-19 in southern China.
In July and August, market demand was much weaker than anticipated, affected by the continued shortage of graphic cards that is impacting the whole market for enthusiast computers. The shortage is expected to continue to impact Fractal’s sales and earnings during the second half of 2021 while product margins are affected in the short-term by exceptionally high freight prices.
Our previous view of the full-year 2021 was for lower or zero growth compared with 2020 given that
the base from 2020 was so high, with growth of 58%. In view of the weaker start to the third quarter,
we estimate that net sales for the full-year 2021 will decrease by 15–20% organically.
Profitability during the second half of 2021 is expected to be weak since most of our operational costs are fixed costs in the short term in combination with a temporarily weakened product margin”.
Our development is currently impeded by a number of external factors in the wake of the pandemic, which is also the case for the industry as a whole.
So, this went straight through the floor regarding expectations, and at the same time, a negative profit warning was issued for H2 as a whole. It’s hard to find strong enough words to describe how bad this result is. I haven’t seen such a bad negative surprise in a while, and it came relatively out of the blue. Although it’s stated that this is industry-specific, I find it hard to believe at this point.
Computers in the EMEA region otherwise seem to have performed positively.
-37.2%, congratulations. This was an honor to be the biggest single-day drop in my almost 8-year investment career in a stock I’m involved in. Cheers to that.
I still think I could add more. But a position can only be considered after Q3, because Q3 will be absolutely terrible, and the final bottom could be seen there. Q4 might already turn around, but H2 as a whole will be completely sh***y. The year -21 is lost, and one has to assess whether their stomach acids are in order and if they dare to look directly to the next year and beyond.
The reference group you mentioned is not quite right in my opinion. Those are computer manufacturers, and Fractal makes different computer parts, not finished devices. A more accurate group would include component manufacturers such as Corsair, Noctua, Logitech, etc.
But of course, this doesn’t change the fact that this time’s earnings report was a thoroughly dismal performance.
"Some reports of Fan Hubs damaged in manufacturing potentially causing a short-circuit have led us to re-evaluate the circuit board design.
We remain committed to the quality of our products and the Nexus 9P Slim Fan Hub included with the Torrent does not live up to the standards customers expect from us."
I have to say that Fractal seems to be messing up everything in its core business. My trust in the company’s management has plummeted even more than the stock price…
This is not a very big deal. Apparently, that case has been rated quite highly. Just in those circles, people have been shouting about Gigabyte because they refuse to recall power supplies that are exploding. In this case, there is also in principle a possible fire risk, but not a probable one. However, the company is acting correctly by making a self-notification and replacing the faulty ones.
I dare to suspect that there is also some demand slowdown, thanks to last year’s record-breaking performance. So, it seems it was one of the bigger COVID beneficiaries that chose the right time for listing (read: former owners cashing in). Luckily, I bailed at the first sign of trouble, as the cold ride seems to be continuing. We are now already about 1/3 below the spring offering price (41 SEK).
Apparently, so much bad news had already been priced in that the market changed its mind or maybe there was something interesting in the conference call, I’ll have to listen to it when I have more time.
Reinstated product tariff exclusion for computer cases in the US
The U.S. Trade Representative’s office (USTR) has reinstated expired tariff exclusions for a range of products, including the computer case category. The exemption will be effective retroactively from October 12th 2021 and will last through December 31st 2022. Tariffs paid for imports of excluded categories from October 12th to date will be repaid to importers.
Fractal Gaming Group AB expects to be repaid approximately 720 000 USD regarding tariffs paid from October 12th to date.
Fractal’s net sales in the US amounted to 155 SEKm in 2021, representing 33% of our total net sales. During 2021, Fractal has paid an import duty of 25% of our product cost for all products imported to the US from China.
The reinstated tariff exclusion will have a significant positive effect on Fractal’s profitability. The expected positive earnings impact for 2022 amounts to approximately 15-20 mkr, including the repayment for already paid tariffs.
I don’t know if many people are still following this company, but Fractal released preliminary data today. Strong growth and profitability compared to a weak last year:
Preliminary result: Strong profit development during the first quarter
Fractal Gaming Group publishes preliminary results for the first quarter. Net sales are estimated at SEK 195.5m (117.5), an increase of 66.4%. EBITDA is estimated at SEK 41.6m (11.3), corresponding to an EBITDA margin of 21.3% (9.6). EBIT is estimated at SEK 36.5m (7.3), corresponding to an EBIT margin of 18.7% (6.2).
"The first quarter’s profit development has been stronger than expected, driven by high sales growth and a good product margin. As we communicated earlier, there is a pent-up need for new PC gaming equipment. The recovery in the market, which began in the second half of 2022, has further strengthened during the quarter, which also means that our distributors have had to increase their inventory levels to meet the increasing demand”, says Hannes Wallin, CEO and Founder.
“It is satisfying that we have had a strong start to the year and that the demand for our products has exceeded our expectations. The new products that were launched last year have received a very positive reception from our customers around the world and we have increased our market shares during the quarter,” he adds.
The financial information above is preliminary. Fractal Gaming Group will publish its full interim report for the first quarter on May 11, 2023. In connection with this, a telephone and web conference for investors, analysts and the media will be held at 09:00 CEST. The invitation with contact details will be sent out well in advance of the conference.
or maybe there was something interesting in the conference call, I’ll have to listen to it when I have more time.