Rather than head out on Saturday evening and risk being forced into isolation, I opted to stay in and play video games instead. Mighty Kingdom Limited (ASX:MKL) had just released their first console game, ‘Conan Chop Chop’ so I paid the $21.99 retail price in the hope that in addition to being fun, it might also help me put together my next blog post.
MKL is a video game developer based in Adelaide, South Australia and its share price has been in decline since it listed on the ASX 12 months ago. The IPO price was $0.30.
Video game development has a very low capital intensity. Wages are the dominant cost for game developers and so more employees helps to drive more revenue. The problem with this is that there is a lag between hiring new employees and receiving revenue for their work – games take time to develop.
MKL have increased their head count from 70 to 140 employees since listing on the ASX and this lag has caused their losses to balloon. As shown in Figure 1, while employee benefits expense had more than doubled at the half year, revenue had only increased by 42%...
Read the rest at Shorting Hat
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