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Varchild2008 (85.18)

Gamestop is a NINJA

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October 18, 2011 – Comments (13) | RELATED TICKERS: GME

Blockbuster failed because they never decided to play on NETFLIX's turf.... They tried to do something like a NETFLIX....But, it still forced you to go to Blockbuster.  It was never online and you select your movie at the touch of a mouse click.

Blockbuster tried to get into Television Movie Rentals Streamed  to your set.  But, that forced you to purchase a Blockbuster Compatible Hardware Device to have access to that.

2 Strikes?  And the third strike being that Blockbuster's bricks and mortar weren't merely just leased buildings, but owned?  3 Strikes and your out!

Sames goes with Tower Records...and Borders.....  These companies didn't adapt to a changing environment.

Retail outlets that aren't QUICK and NIMBLE like a NINJA will not survive.


In a 100% digital universe in which Pre-Owned Physical Games disappears:

A) Gamestop still has the Pre-Owned hardware / accessories business.

B) Gamestop has recently expanded their base of pre-owned merchandise into APPLE products.

http://www.gamestop.com/collection/announcing-awesomeness

C) Gamestop selling nothing but Digital Copies of Games is a margin decline from Pre-Owned Physical perhaps but a margin improvement from NEW SKU Physical Sales.

D) Gamestop has Spawn Labs and one could speculate that this system could be used as a Video Game Rental service.

Not sure what profit margins look like for a Digital Game Rental business...

But...REDBOX competitor ceases to exist if it remains physical rental box company....and physical disappears...
leaving OnLive and Spawn Labs to clean up the market share.

So....Gamestop has WAYS OUT....Like a NINJA....Gamestop can adapt to the environment and strike at the right time into market places and technologies they haven't gone before.            

P.S.  Got an opinion?  Want to tell this 100% fully invested into GAMESTOP as the absolute only investment that he is completely wrong?  Write your thoughts and make fun of my opinions all you want (as long as it is within Motley Fool Guidelines) in the comments section below!

13 Comments – Post Your Own

#1) On October 18, 2011 at 6:35 PM, Varchild2008 (85.18) wrote:

Oops Correction:  I was reading wikipedia when I had thought Blockbuster basically OWNED all of their buildings.

After further research I have no clue if those buildings were leases or outright purchases.  Blockbuster did a large number of acquisitions as it passed hands around...So...too confusing and complicated..

Nonetheless.... Blockbuster refused to adapt to a changing envirionment and respond to the Customer's needs.

Gamestop will have to keep adapting and responding to the needs of the Customer.

Gamestop will have to keep offering products both hardware and software for less in price than their competitors.

They will simply have to keep evaulationg and reevaluating their customer base to understand the future of video gaming retail.

I think Powerup Rewards Program is helping them to understand and adapt right now.

All I can say.....is.....KEEP IT UP!!!!

Today's stock price move higher by 3% is just a sign of confidence in the marketplace for Gamestop to succeed.

Gamestop can move and have been moving far quicklier than Blockbuster/Tower Records/Borders ever had.

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#2) On October 19, 2011 at 9:23 AM, blesto (32.22) wrote:

GME. Can't say they're a bad investment, but to be totally 100% in any one investment doesn't sound like such a good idea.

I like the story and it seems promising. Anyway let's look at some numbers.

What I Like to see                     Actual                          Pass/Fail

5yr rev growth >15%                14.92% (close)   but         F

1yr rev growth >12%                 4.40%                              F

Gross margin >35%                27.20%                             F

Net margin     >15%                 4.20%                              F

Debt/Equity   <0.50                   0.09                                P

Current Ratio >1.3                    1.30                                P

ROE             >15%                  13.5%                              F

P/E                <20                       9.3                                P

Div yield        >2%              No Dividend                          F 

CCC     <90 days             10.96 days (very good!)        P

Only 4 out of 10 pass. It's always good to keep an eye on the numbers. Management can make a difference as you've shown.

I still think you might like to look elsewhere for any new money to invest.

just my 2cents 

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#3) On October 19, 2011 at 4:52 PM, chk999 (99.97) wrote:

Here's an article that predicting that by 2020 separate game consoles and distribution by physical media will be gone.

 

http://shopping.yahoo.com/articles/yshoppingarticles/717/7-gadgets-that-wont-be-around-in-2020 

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#4) On October 19, 2011 at 6:13 PM, Varchild2008 (85.18) wrote:

My 2 cents:

I don't see the point in having the same statistic Revenue Growth in twice so I eliminated the 1 yr and kept the 5yr.

I give Gamestop a PASS for Gross Margins.   Instead of your FAIL.

Why?   27%+ beats a lot of other businesses within the Consumer Electronics Sector.

You can not place an arbitrary figure and expect that to make any sense for every single stock, every sector of the economy.

It's flat out unfair.

I only found Radio shack that passes and every single other fails miserably.....????? That doesn't make sense.

I also stripped out your silly "NO DIVIDEND" statistic because that is flat out unfair.

What about stocks that don't have a Share Buyback program?
You do not have a *PASS* for having one!!!!!

Stuff like that is just plain silly...and nonsensical....

Handing out dividends doesn't always make sense for every single stock regardless of sector.... It just doesn't work for some businesses....Gamestop is one of those Businesses that SHOULD NEVER pay out a dividend.

Anyhow... I get: 7 PASS and 1 FAIL (stripping out the nonesense in your statistics metrics)

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#5) On October 19, 2011 at 8:46 PM, Varchild2008 (85.18) wrote:

"Here's an article that predicting that by 2020 separate game consoles and distribution by physical media will be gone."

And that would be a great thing for Gamestop's business.

Yes Pre-Owned Physical goes away.... In its place is digital sales and mobile sales and many other types of ways to sell digital or cloud based gaming...like Kongregate already does.

I see a 100% digital video game universe will not destroy Gamestop but actually boost Gamestop's growth.

Isn't it about time Investors stopped FEARING the digital future in regards to Gamestop?

Barnes and Noble seems to be doing just fine and dandy with the NOOK.

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#6) On October 19, 2011 at 8:50 PM, Varchild2008 (85.18) wrote:

P.S.  If Tablets aren't going to go away.....

Then therefore....Consoles arent because Tablets = Consoles.

How do they not?

What.... They look different than an XBOX360 so therefore they can't count as a Console System?

Give me a break... An XBOX360 looks very different from an Intellivision system...  It really does.... So what??

If an Intellivision was called a Console and an XBOX360 today is also a Console System.....Then why can't we just drop this notion that Tablets are Tablets...and not console systems?

So what if in the year 2020 I walk into a Gamestop and to buy a Gaming System I buy a Tablet?  So what????

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#7) On October 19, 2011 at 8:54 PM, Varchild2008 (85.18) wrote:

P.P.P.S.

I love going into Steam forums and reading what people write there....I find it facinating that there is a growing population of gamers that know that if you want to save $$$$$$

you do not exclusively shop at IMPULSE....or exclusively shop at STEAM.....or ORIGIN.....or whatever..... You instead browse around in case someone has it for less....special deal...or sale price...

Since when did PRICING lose out to.....well....its not Nintendo selling the software? 

no... I don't care that NINTENDO chooses to sell software or that Electronic Arts has ORIGIN and is selling software product...

So what????

Maybe Retail Outlets like Gamestop just need to branch into THEIR BUSINESS by owning Game Development Houses?

You know?  Gamestop already has Kongregate and JOLT and essentially already does have a stake in the games development world..... They can grow that area if their business as they continue to pay off their debt and grow Cash on the Balance sheet.

CASH on balance sheet is either equal to or it is greater than their long term debt.

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#8) On October 19, 2011 at 11:50 PM, blesto (32.22) wrote:

LMAO!

Geez, I didn't mean to set you off like that.

I like reading Dan Caplinger's(TMFGalagan)articles and the metrics he uses to look at companies. Which was what I was using. To be fair he's looking at more of income investor type companies which GME isn't. Two metrics I didn't include because of no dividend are the 5yr div growth rate and the payout ratio.  
I also learned about the CCC (Cash Conversion Cycle)
from Seth Jason's (TMFBent) articles, which I added to the list.

It's just some numbers of one snapshot of time. To dig in further to get a better picture, I would gather the snapshots of the past 4 or 5 years to see how the numbers are trending. That would give a more accurate picture of how they're progressing.  

Here's a Seth Jason article with some other numbers and how GME is progressing on that front. He concludes GME has some work to do. And I know you believe they'll do it.

Good luck with being 100% in your one and only investment. At least you're not 'Deworsifying' as I think Peter Lynch coined it.

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#9) On October 20, 2011 at 12:01 AM, blesto (32.22) wrote:

I did it again. I see you already saw that article and had a strong opinion.

LMAO again!

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#10) On October 21, 2011 at 2:23 PM, Varchild2008 (85.18) wrote:

See?  It is pointless these snap shots....these statistics without context.  It is useless.

And no... While you eliminated some categories dealing with dividends you stil kept one.

By having a DIVIDEND category and absolutely no SHARE BUYBACK category then you are just saying that Dividend paying stocks are better than Share Buyback stocks.

meanwhile (F) Ford Motor Company seems to be doing just fine despite not yet bringing back their dividend.

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#11) On October 21, 2011 at 2:26 PM, Varchild2008 (85.18) wrote:

Operating Margin isn't even in your list of statistics and that is in Seth Jayson's article.

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#12) On October 24, 2011 at 2:00 PM, chk999 (99.97) wrote:

Ok, I just called underperfrom on GME. We'll see who is right.

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#13) On October 24, 2011 at 2:33 PM, WikiCPA (59.84) wrote:

Varchild2008,

 I'm not an experience investor or anything, but it seems like you are falling into some investor fallacies. I love finding and becoming passionate about a stock that is screaming explode, but remember this is your portfolio, you aren't diversifying, so having all good qualities would be a good bet when you place all your eggs in one basket.

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