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Todd Sullivan
Todd Sullivan

Game Stop Confuses

June 01, 2012 | About:
Maybe I am a dope but I still see this as winding down the store traffic and eventually the majority of the stores.

There are no “trade credits” being generated from the online game download. It seems as though this is simply a run off of the ones they currently have. If that is the case, then the SSS decline we are seeing ought to accelerate as this is rolled out in the US eventually.

So, why is this puzzling? Game Stop (NYSE:GME) still derives the majority of its profits from the physical games & trade in business (it drives repeat traffic). Games cost the same wherever you buy them, GME captures customers with the trade-in program and then when they are there they buy hardware also. With the precipitous SSS declines we have seen in the last two quarters and GME offering customers yet more reasons to avoid the stores, it becomes even more confusing as to how they will achieve the aggressive FY guidance they have issued given Q1 and Q2 were both below expectations.

As customers use up the trade-in credits for online games, the need for them to use GME as their primary game center diminishes. At that point either WMT, AMZN or any other vendor will do.

As I have said repeatedly, I’m not sure GME evaporates like a Blockbuster or Hollywood Video, I just think if they survive they do so at a fraction of their current size. Once the stores are gone, they have no advantage over any other online vendor and if anyone thinks Bezos and AMZN won’t be willing to make pennies on games to squeeze GME out, I think they are fooling themselves.

GameStop International and Sony Computer Entertainment Europe Announce Downloadable Content (DLC) Initiative

GameStop’s European and Australian Stores to Start Selling PSN Digital Content

GRAPEVINE, Texas–(BUSINESS WIRE)–Jun. 1, 2012– GameStop Corp. (NYSE: GME), the world’s largest multichannel video game retailer, announced today the addition of PlayStation®Network downloadable content (DLC) from Sony Computer Entertainment Europe (SCEE) to its European and Australian store base. This digital option will be available at more than 1,600 store locations in Australia, New Zealand, France, Italy, Spain, Germany, Austria and Switzerland. Customers in those countries will have the ability to purchase DLC with any form of payment including trade credits, gift cards and cash. Last year, GameStop returned more than $ 1.2 billion in trade credits for pre-owned games, and those customers are eligible to apply their trade credits toward any game purchase, including DLC.

“The ability to use cash and trade credits as currency is a powerful tool and SCEE recognizes that it provides a new channel for gamers to access and purchase exclusive digital content,” said Mike Mauler, GameStop’s executive vice president of international. “We are thrilled to be bringing this initiative to our international customers.”

“Helping customers discover great digital content at retail is what GameStop does best,” said Jim Ryan, CEO Sony Computer Entertainment Europe. “We look forward to continued success with our DLC partnership and the payment flexibility it brings to GameStop customers worldwide.

About the author:

Todd Sullivan
Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 2.8/5 (16 votes)


Invisiblehand - 5 years ago    Report SPAM
GME will likely become extinct. I think it is a classic value trap. There will be increasingly less reason to have a middle man between publishers and consumers and used games will be a thing of the past. I can't say when but soon enough that I do not want to own the stock. Even physical copies are handled better through amazon. Instead of share buybacks to juice EPS they should have used the cash to completely restructure their business or much better yet just dramatically increased dividends.

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