GameStop Corp. (NYSE:GME) is incrementally bullish on the upcoming console cycle compared to their views 3 to 6 months ago. The company is expanding into higher-margin revenue streams apart from recording more favorable revenue mix, and that is helping margins.
GameStop is the world's largest multi-channel video game retailer. GameStop's retail network and family of brands include 6,505 company-operated stores in 15 countries worldwide and online at www.GameStop.com.
The company's network also includes www.Kongregate.com, a leading browser-based game site; Game Informer magazine, the leading multi-platform video game publication; and Spawn Labs, a streaming technology company.
[Related -Why Growth Is Deep In The Heart Of Texas]
Previously, management's model assumed the video game industry would shrink 15 percent or so in the next-gen compared to the last cycle.
"With additional information on hardware, software and consumer demand, we think management is beginning to see the potential for industry sales to be at least flat cycle over cycle," Sterne Agee analyst Arvind Bhatia said in a client note.
The company's used business next year could be stronger than most people currently believe. Given the high margins, any upside in this segment could clearly be meaningful to earnings.
Used video game product revenues for the second quarter were down 6.0 percent to $529 million. New software sales were down 9.3 percent to $430 million, compared with a 19.4 percent decrease in the US market as the company continues to gain market share.
[Related -GameStop Corp. (GME) And A Lesson In Patience]
New hardware sales also dropped 19.4 percent to $148 million, reflecting a consumer pull-back for current legacy consoles ahead of the upcoming launches of Sony's PS4 and Microsoft's Xbox One – both of which are expected this November.
Consumers reserve their interactive entertainment software dollars for the new console launches later this year. Sony anno! unced the PlayStation 4 will launch in North America on Nov. 15 and Europe/Latin America on Nov. 29. The timing is in line with Street expectations – arriving in North America two weeks before Black Friday. Sony also indicated pre-orders of the PS4 have surpassed one million units, suggesting that demand for its new console appears strong.
Microsoft's Xbox One is expected to go on sale on Nov.22, and would launch in 13 markets around the world, followed by eight additional countries in 2014. Xbox One has 50 announced titles of which 23 titles are slated to be available at launch.
Meanwhile, GameStop management is bullish on the Simply Mac opportunity and its potential to offset some of the cyclical nature of their core video games business.
"We think there is likely to be one more meaningful long-term opportunity that GME will reveal over time. Also, our sense is management is unlikely stray too far from its core business and core competencies," Bhatia said.
In addition, PowerUp Rewards loyalty program remains a key advantage for the company. The program has reached 25 million members in the US and 31 million members worldwide.
Separately, the upside surprise in GTA V (as reported by Take Two) and the strong launches of Battlefield 4 and Assassin's Creed IV: Black Flag bode well for the company's third quarter and the high anticipation for the launch of next-gen consoles in November bodes well for its fourth quarter.
The company recently sent emails to customers indicating that pre-orders for Xbox One are reopened for a limited time, suggesting GameStop has received an additional allocation for that console.
No comments:
Post a Comment