Why $PLAY Dropped

Turnaround Essay

Dave & Buster's revenue rose 24% year over year to $468.4 million. Its growth was mostly by its acquisition of Main Event for $835 million back in June. Both companies have experienced high revenues, Dave & Buster's stores had their sales rise by 9.6% compared with the second quarter of 2019. And Main Event's revenue was up 29.7% compared with the same period in 2019. However, inflation had a huge impact on the company's profitability. Dave & Buster's operating margin declined to 12.1% from 21% in the year-ago quarter, some of it is due to acquisition-related costs and higher compensation expenses. Its net income as a result went down 45% to $29.1 million, or $0.59 per share which caused a huge drop in price. This was a big mistake on my part as I thought if the EPS dropped due to their acquisition, people wouldn’t mind as it’s just the company acquiring another business for their future growth. Usually, when EPS drops happen, it’s mostly due to the company having a decreased revenue or a decreased customer base which is why people decide to sell their shares. However, today I learned that even if the EPS drops due to the company spending money on things that will help their growth, investors would still not enjoy it, no matter how good the revenue is. Next time I will do much more research on the companies that have an acquisition deal going through.