GameStop Corp. (GME)

Have to agree with TMFBreakerCharly from the 16th with this one - the way gaming is done will change, and gamestop's niche market I feel will just become local mom and pop shops - GameStop doesn't have the resources to start making it's own gaming consoles or offering monthly subscriptions to games. Additonally I fear that expectations this holiday season will be much higher then what is feasible (company will make less as it drops prices to get buyers). The increasing debt load into 2008/2009 helps build more confidence into this call as well

The products they sell are going to go away. Check out what EA Sports' President has to say about it:

http://uk.games.ign.com/articles/103/1036254p1.html

Most of you would choose probable death, so you start moving towards a hybrid model of digital distribution."

When asked if he was saying the consoles could become sinking ships, Moore reiterated his statement.

"I'd say the core business model of video games is a burning platform. Absolutely. We all recognize that, and we'll recognize it 10 years from now when we tell our grand kids," he said. "We'll tell them we used to drive to the store to get shiny discs that have bits and bites on them and we'd place them in this thing called a 'disc tray,' and it'd whirl around…and they'll go 'What?'"

"So, the concept of physical packaged discs and the core business model that is video games as it currently stands is a burning platform."

When I bought this stock, I considered GameStop to offer "one-stop shopping" for the various adherents to computer or electronic games, i.e., GME offered new and used "equipment" as well as new and used games to fit the budgets of potential and actual customers. The stock has been falling over the last few years whether due to the economic downturn or, more significantly the potential of downloading of games or an increase in competitors, e.g., Walmart or other national chains. The "lost income" or the loss relative to those stocks destined to come strongly back from the recovery outweighs further purchase or the application of a "Hold" rating on GME. At this time there any number of stocks which offer at this time of recovery better returns and /or greater potential for appreciation such as ATHR, HAS, LM, IPGP, COST, CMG/B, to name just a few.
Runswithbulls

Xbox 360 and other systems are moving toward a download model. This will do to Gamestop what Netflix has done to Blockbuster.

I have a 5 year time frame on this stock. This company will declare bankruptcy or be a stock under 5 dollars in 5 years time. Or it might be bought out by a bigger company like Amazon, Walmart, or Best Buy when its under 10 dollars.

I know this will not be a popular pick for now, but in a few years you'll know where I am coming from. I think Sony, PS3, and Nintendo are sick and tired of Gamestop reselling their games. So what will they do about it? Their going to put them as downloads on their next generation consoles. They are trying it now with their current generation and it will just literally tear Gamestop apart.

Gamestop stores are cluttered and some of the stores feel like your living in the 1970's. Their staff is full of teenagers that couldnt give a crap about the customers. Last time I saw teenagers running an entire company was a little electronic store called Circuit City.

People dont go to Gamestop to buy new games, they go to buy used games. Once Best Buy and Amazon start doing it, its church for Gamestop. And those companies have better relationships with game companies. You never know if they'll work hand in hand and put Gamestop in the cold.

Finally, I think Gamestop stand alone stores will be the downfall. No one wants to get out of their car and go to a place just to look for games. They want to get out and browse games, cameras, music, dvds, etc. Just like Walmart and their grocery stores, we as consumers want a one stop shop for everything. I think the stores inside the mall last for awhile...but once Gamestop gets in trouble finacally in the next few years, the stand alone stores will be the first to go. Plus, too much murder and crime with those stand alone stores. It seems every week someone is dying in a Gamestop store.

The new Blockbuster. New competition from WMT and online will hurt.

I admit I got this thinking from another FOOL. With Walmart getting into the business of taking back used video games and other competitors examining the model, plus digital delivery of games ramping up, I see a tough competitive environment into the future.

For the very short term I don't see many issues with earnings or profitability with GameStop.
However, the bread and butter of the store level profitability lives and dies with their ability to maintain very high margins on their pre-owned games and consoles (Games are bought at a range between 3-22 dollars and sold for 14.99 - 64.99). Many of the major electronic stores as well as the some of the conventional mall based CD/DVD stores are starting to target the pre-owned game markets by offering either better trade in values or low cost pre-owned games which could in the longer term severely impact in store sales.

Even with as much growth as I see coming in the video game industry over the next decade, GameStop will not be the beneficiary.

With Amazon and BestBuy increasing their stake in the industry and game developers looking for more direct control over product revenues, Gamestop - a company that is notorious in the gaming industry for being uncooperative - will be left behind.

Game stop will slowly fade to obscurity as they alienate software makers and are left out in the cold as more and more games become direct downloads or work on a steam model.
Frankly I dont think they will survive the whole 4 year time frame noted above and should be bankrupt and out of business by 2012

This stock should underpeform in the long term due to the increased competition from Amazon.com. Amazon recently announced that they were going to enter the market of buying used games and providing credit for them. Depending on how well they manage to implement this, the days of GameStop could be about as fruitful as those of Borders. Another seller of highly marked up merchandise.

The game publishers and developers are getting the bum end of the stick with GameStop pushing the sell of used games vs. new games. Therefore GameStop makes roughly a 70% to 80% profit on every used game sold. For example: Halo 3 trades in for $12...GameStop resells it for $44.99 so that is a $32 profit the first time that it is sold. That's all bank for them and the older the game is the lower the trade value but they will maintain the same pricepoint from over 6 months ago.

In this troubling economy people are taking notice of prices and what they were months ago. Parents can not afford to continue to waste money just to make Mr. Dematteo and his partners rich. It's a $8 billion company and they don't even take care of their employees who will shop at Wal-Mart, Target and Play N Trade in a heartbeat because they have better prices on new product. Their losing money in house and threaten to terminate employees for buying software at other retailers because it is a "conflict of interest". They are very shady and will not continue to profit if their business practices do not change.

I know, I work there!

http://www.penny-arcade.com/comic/2007/03/30/

I wouldn't be so bullish on GME. In the short term they will be fine, but they're in the position that many used CD and record stores were back in 1990 when record labels were complaining that used albums were cutting to deeply into their profits. Garth Brooks even refused to sell his records and CDs in stores that also sold used albums. All this hot air didn't amount to much at the time, but it's the type in inside the industry in-fighting that began it's demise.

GME is in the middle of the same fight with publishers right now who are looking for ways to encourage customers to buy games new, rather than used at Game Stop. Part of the reason Game Stop is able to do so well is they make a near 70% margin on used games while publishers get zip. Naturally publishers are profoundly annoyed by this and are trying to create ways to ensure that the games they sell will be bought new.

Case in point, the new Gears of War 2 game from Microsoft comes with a package of downloadable maps that are only available to customers who buy it new. There's simply no other way to get it and you can't buy it at Game Stop for any amount of money.

As for downloads of the "big game" new releases not happening for 7-10 years? It's already happened in PC gaming. No one buys computer games in boxes any more, they get everything over Steam. If things continue to progress in the industry the way they have you can expect this trend to happen on the console side in more like 3-4 years.

This stock will see a surge during this months holiday seasons but its going to drop significantly in the next coming months maybe years. True their earnings are decent, its the fact that the gaming industry is turning away from allowing reselling of games, which makes up a lot of Gamestop's services. With games getting more and more connected through online play, the game developers would rather sell through that media than make no money when gamestop resells their game. Gears of War 2 for example has maps for download with a unique code with a new copy, if you buy the game second hand you will not be able to achieve these maps, all the guitar hero/rock band sell their songs online so the companies make some money. A lot of video game companies do not like the resale of their games and are looking for ways to fight reselling. Unless Gamestop changes or adapts to this changing connectivity in the gaming community they will basically have their whole reselling model be obsolete.

There will be a lot less money for games and gaming systems this holiday season. Kids get used to playing with ants and bugs for entertainment.

This company's business model is worse than Blockbuster's. They're done, son.

A real dog.

GME has shown extraordinary growth in recent years but business will likely slow in upcoming months due to prolonged economic weakness in the developed regions that GME has most of its 5,000+ stores (United States, Australia, Canada and Europe). I believe the consumer will further cut back on entertainment spending as rising food and energy prices will diminish discretionary income. Also, the console cycle is towards the tail end of new product releases. I`m not much of the gamer but don't know of any other major releases that could drive sales through year end.

GME`s valuation seems warranted. It is one of the better if not the best retail-electronics companies out there. I say this stock could end up in the $40-$45 range, 6-9 months out.

(PE:17-20 * 2.38 'fy09' = $40- $47)

Look for GME shares to trade inversely to the price of oil (like most of the market) in the following weeks.

Key Risk Factors:

The electronic game industry is cyclical, which could cause significant fluctuation in our earnings.

The electronic game industry has been cyclical in nature in response to the introduction and maturation of new technology. Following the introduction of new video game platforms, sales of these platforms and related software and accessories generally increase due to initial demand, while sales of older platforms and related products generally decrease as customers migrate toward the new platforms. New video game platforms have historically been introduced approximately every five years. If video game platform manufacturers fail to develop new hardware platforms, our sales of video game products could decline.

The ability to download video games and play video games on the Internet could lower our sales.

While it is currently only possible to download a limited amount of video game content to the next generation video game systems, at some point in the future this technology may become more prevalent. A limited selection of PC entertainment software and older generation video games is currently available for download over the Internet. If advances in technology continue to expand our customers' ability to access software through these and other sources, our customers may no longer choose to purchase video games or PC entertainment software in our stores. As a result, sales and earnings could decline.

Our international operations expose us to numerous risks.

We have international retail operations in Australia, Canada and Europe. Because release schedules for hardware and software introduction in these markets often differ from release schedules in the United States, the timing of increases and decreases in foreign sales may differ from the timing of increases and decreases in domestic sales. We are also subject to a number of other factors that may affect our current or future international operations. These include:

• economic downturns;

• currency exchange rate fluctuations;

• international incidents;

• government instability; and an increasing number of competitors entering our current and potential markets.

• economic downturns;

• currency exchange rate fluctuations;

• international incidents;

• government instability; and

• an increasing number of competitors entering our current and potential markets.