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GameStop: Buy This Retailer to Benefit From Console Growth

May 26, 2014 | About:
jaggom

jaggom

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After a dismal performance, GameStop (GME) has revived and its stock prices are soaring. The company had been experimenting with various strategies to turn around its situation. Some of its strategies include selling pre-owned games and devices, and boosting digital content sales among other things.

But all was not lost for GameStop as management took some solid steps to revive its growth. The stock had surged even after a weak outlook. This clearly shows that GameStop has gained investors' attention and they are optimistic about its prospects.

The challenges that GameStop is overcoming

The company has been facing some challenges in its console business. It mainly includes hardware, software and digital. The current trend in customers' gaming habits are reversing, which is a big concern for the company. This has in turn affected its hardware and software sales, as consumers are shifting to next generation gaming consoles.

But in 2014 and 2015, the company expects some good returns. According to management, its revival should start by the end of the year. GameStop believes that the introduction of the PlayStation 4 would lead to double-digit console growth in 2014; moreover, the addition of the next version of Xbox would boost console growth above 20%.

The introduction of new consoles will definitely help GameStop to revive from it slump. In fact, the launch of the Nintendo Wii U has already had a positive effect on its sales in the previous quarter. If such was the effect from Nintendo’s launch, it can be easily comprehended how much more would Sony and Xbox would affect GameStop’s sales numbers.

However, we must not forget that pricing is a very important factor, which could affect the sales numbers. But above all, the most challenging problem for GameStop is the method of delivery of games and the blockage of used games.

According to GameStop, if these rumors turn out to be true, then it could affect its sales by as much as 60%. Moreover, if consumers have to download the games, they will have to connect to the internet and it will require large amount of data transfer, which might not be too appealing for them. Thus, we can hope that neither Sony nor Microsoft would take such a path and antagonize the potential buyers.

Going digital

Talking about digital downloads GameStop has made significant progress. Its digital revenue has increased 48% annually for the past two years. PC digital download sales have also improved by a whopping 68% in the previous quarter, while its game transaction revenue had an extravagant increase of 116%.

GameStop has planned for new titles this year, which again will play a decisive role in its performance. The release of Battlefield IV by Electronic Arts, and Grand Theft Auto V by Take-Two Interactive have provided the necessary boost for GameStop. This can be estimated from the fact that Battlefield 3 was EA’s fastest selling title, which sold more than 5 million copies in a week and was raking in more than $300 million during that time span. As far as Take-Two’s GTA V is concerned, it is on its way to becoming the best-selling game of all time.

Conclusion

Considering all these developments GameStop’s prospects look extremely positive. Although it had been sailing through troubled waters for quite some time, the company looks well-positioned to profit from the current console cycle and blockbuster games. The stock prices have soared, reflecting investors' confidence in the company.


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