Tags: GameStop | new | competitors | GME

GameStop Faces Challenge of New Competitors

By    |   Monday, 07 May 2012 05:18 PM

GameStop (GME) pioneered the used video game market, rapidly building a chain of retail stores that sells both used and new games and consoles. It’s a market in flux, however, as online gaming becomes more accessible and interest in mobile games takes off. Transitioning to new sales platforms with new competitors could be a challenge for the chain, analysts contend.

GameStop is a video game retailer which buys and sells new and used video game hardware, physical and digital video game software, accessories, as well as PC entertainment software and other merchandise. As of late January, the company had 6,683 company-operated stores in the United States, Australia, Canada and Europe, primarily under the names GameStop, EB Games and Micromania. Of those, more than 4,500 are in the United States.

GameStop also operates e-commerce sites under various names and www.kongregate.com, a browser-based game site; Game Informer magazine; Spawn Labs, a streaming technology company; and a digital PC distribution platform.

“Our used video game products provide a unique value proposition to our customers, and our purchasing of used video game products provides our customers with an opportunity to trade in their used video game products for store credits and apply those credits towards other merchandise, which in turn increases sales,” GameStop managment told investors in a recent filing.

GameStop points out that the estimated market size for its sector is $33 billion in the parts of the world where it operates. Based on internal estimates compiled from a group of expert third-party sources, GameStop said that it believes that the North American market for digital game sales, including mobile, social, console and PC games, was approximately $6 billion in 2011, and that this market is expected to grow to approximately $10.6 billion by 2015.

“Our goal is to continue to be the world’s largest multichannel retailer of new and used video game products and PC entertainment software and expand our business into the mobile device category to provide the best video game content to our customers anytime, anywhere and on any device,” GameStop contends.

Gamestop has a market cap of $2.92 billion in a sector, specialty retail, where the average company size is $6.20 billion. Its trailing 12-month P/E ratio is 8.95 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.10, compared to 1.23 for the sector.

Projected earnings per share growth for the coming year is 7.48 percent, lower than the sector average at 16.89 percent.

Attractively valued

Wall Street is broadly positive on GameStop’s prospects, with buy or outperform ratings from Credit Suisse, S&P, EVA Dimensions, and Thomas White International. Pacific Crest analysts rate the stock at underperform.

GameStop next reports on May 17.

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