The U.S. video game industry is growing gangbusters, with 2010 sales of $18.5 billion. Some Xbox 360 titles even sell over 10 million copies. Retailer GameStop (GME) is the kingpin in this lucrative niche. It’s the world’s largest video game and entertainment software chain, with more than 6,600 stores in 17 countries.
Propelled by a strong market, GameStop has prospered. Its three-year growth, compounded annually, was 11 percent through fiscal 2011. New stores, acquisitions and the largest collection of video games have served as GameStop’s winning formula. The retailer has also fed revenues with high-margin used game sales, which accounted for 26 percent of fiscal 2011 sales.
Not surprisingly, competitors such as Amazon (AMZN) and Best Buy (BBY) are gunning for GameStop’s business. But energizing influences like new motion-based accessories and 3D gaming should help drive more sales, says S&P analysts. The Texas outfit already offers digital, iDevice and gaming tablet products. The trick is to keep innovating, say the analysts.
Competitors are nevertheless eating into GameStop’s sales. Its third-quarter revenue rose just 2.5 percent to $1.95 billion, compared to $1.90 billion a year ago. But digital sales rose 59 percent, helping propel earnings to 39 cents per share. Making additional investments in digital and emerging businesses is the long-term strategic plan, said GameStop CEO Paul Raines.
Of the 18 analysts followed by Thomson/First Call, seven have strong buy recommendations and three have buys, with six holds and two underperforms.
Wedbush analysts have an outperform rating on GameStop, citing strong 2012 growth fueled by new hardware introductions.
The company reports next on March 5.
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