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As Vice President of Technology Evangelism at WSO2, Chris Haddad raises visibility, awareness, and knowledge of Cloud, API Management, Service Oriented Architecture, and how to re-invent software delivery. Chris works closely with developers, architects, or C-level executives to increase WSO2... More
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  • Electronic Arts Blinks, GameStop Should Pounce 0 comments
    Sep 11, 2012 3:50 PM | about stocks: EA, GME, MSFT, NOK, BBY

    With Electronic Arts (NASDAQ:EA) blinking and trying to buy Valve, GameStop (NYSE:GME) or Microsoft (NASDAQ:MSFT) should step in and pounce on an emerging competitor.

    To survive, GameStop must re-make it's business model and distribution channel for the 21st century, and online game distribution is required, critical component. Microsoft's XBox franchise is showing its age as a 'single console' online environment. Microsoft also desires to forestall the shift away from the WinTel duopoly towards Apple (OTC:APPL) - Intel (NASDAQ:INTC) or Apple-ARM (NASDAQ:ARMH).

    Recent hardware+software+services moves by Microsoft to re-engage the gamer market with the Nokia (NYSE:N) Lumina and Microsoft Surface may forestall base erosion to Valve's strategic new hardware platform, but why not embrace the former Redmond colleagues and bring them back into the fold?

    GameStop has a strong local storefront presence and lucrative second market trade-in business. Management has publicly acknowledge the online distribution threats, and made limited investment to stave off the Best Buy (NYSE:BBY) and Circuit City scenario.

    Valve has cornered mindshare as the 'future the gaming market', and has moved beyond teen fad to show mature business model innovation, a dedicated gamer following, and bold strategy to re-make the console market.

    With the competitive threat and opportunity outlined, could GameStop or Microsoft close the deal and seal their lead? Do investors believe a $1B to $2.5B all cash deal would provide FaceBook (NASDAQ:FB) Instagram kudos, or be seen as a goodwill albatross?

    To regain leadership, GameStop must augment it's strong local storefront presence and lucrative second market trade-in business with a viable online distribution channel and eliminate competitive threats. Unfortunately, with only $139M in cash on hand (on 7/28/2012) and a $2.7B market cap (on 9/11/2012), GameStop management would have to structure a complex deal to buy Valve. Healthy projected future cash flows may make the (necessary) deal feasible.

    Microsoft has an advantage (and disadvantage) as a known entity to the ex-Microsoft Valve team. With $63B in cash and short term investments (on 6/30/12), Microsoft can afford to be generous to the trailblazers. Will Microsoft's Board and XBox executives make a bold move?

    Disclosure: I am long GME.

    Additional disclosure: I have children who are Microsoft XBox, GameStop, Apple, and Valve fans

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