user1010101

Why I'm Bullish on GameStop

also, your math does not make sense - the person who traded in the game did not add margin.....

Why I'm Bullish on GameStop

Troilus - you are relying on used game sales to continue.

How can you say that this will occur if everyone in the industry believes online distribution is the way to go.

Why I'm Bullish on GameStop

I have two issues with this company: 1) is there a terminal value - i.e. will online distribution slowly steal revenues from the retail outlets and 2) the accounting applied to new vs used game sales.

I don't believe I need to elaborate on the first issue - it has been well discussed and blogged about on seekingalpha.

I do however think there are some issues with the accounting at GME - specifically with regards to gross margins. The company seperates both new and used game gross margins but does not explain how they value used game inventory (other than they have a "proprietary system") or how they account for trade-in's.

For example, if I walk into game stop and trade in a used game (say I get $10) and then go buy a new game (costs $50) I pay a net $40. Assuming game stop gets a 20% margin on the $50 price point, they would net $0 - i.e. no margin ((50*.2) -10 = 0). However, as it currently stands, i believe the company records the used game margin independent of the trade in that occured in the transaction. Instead, the company includes that $10 trade in as an inventory purchase (i.e. dr. inventory cr. cash).

I am concerned that this company is buying its sales and may have a large build up of used inventory. The company refuses to offer up the value of its used inventory - almost every year we have seen inventory levels rise (recently faster than sales). I think this is cause for concern and investors should be cautious on the name.

GameStop Director Leonard Riggio Shows Us the Future of Gaming

Gaucho420,

I am not sure I agree with you that hardcore gamers download games at mid-night since not all games hit XBL before being released at a retail level - this is up to the distributor. As well, with the size of games getting larger, a 60gb HD is worthless. You cannot simply d/l an unlimited amount of games - at some point you run out of space. The idea behind the HDD was not to convert customers to an online distribution model - it is meant for updates, upgrades and game packs.

Finally, if everyone were to jump on to d/l a game (like you do) you would not have the game d/l by the following morning - servers are not capable of handling those loads. So, for now, be happy your are one of the few taking advantage of online distribution.


On Oct 15 04:41 PM Gaucho420 wrote:

> Dedicated gamers will get their games faster by downloading. I have
> XBL and if a game came out at midnight online, I'd have XBL downloaded
> overnight and have it ready for use in the morning. That's much faster
> than waiting for a retail store to open the next day.
>
> I go to store now, such as this week to pick up NBA2k10, because
> I wanted the anniversay edition. But had it been a normal non-anniversary
> year and had the option been there to download it straight to the
> hard-drive from XBL, I probably would've opted for that.
>
> I think a bigger argument agaisnt downloads is 1) the added cost
> of a hard drive to store them (especially when you get to the full
> sized games), 2) the lack of a manual and 3) no trade in value on
> downloads.
>
> I know quite a few dedicated gamers who don't download that many
> games, because they dont' feel like wasting money on a hard-drive.
> And that's the over-riding reason, plus the trade-in value of discs.
>
>
> For the 360, retailers should thank MSFT for making the hard drives
> propriatery and super expensive, as it keeps a large number of gamers
> hooked to retailers, as nobody wants to pay MSFT ridiculous price
> on its 60 gig or 120 gig drives.
>
> I have paid for the 120 gig drive, because I can afford it, but most
> can and most simply don't even trie demos, movies or anything else,
> as the hard-drive on the 360 is cost-prohibitive.
>
> I know the PS3 can use any drive you choose, but even at bottom barrell
> prices, it still cost money.
>
> So in my humble opinion, online gaming will be restricted (for a
> tiny while) by the cost of extra storage. I have seen this to be
> true across my gaming friends and I know a boatload of all ages,
> sex and income types. Gamers want to play...paying for a hard-drive
> is simply an unwanted hassle at the current prices.

GameStop Director Leonard Riggio Shows Us the Future of Gaming

Bruce,

Could you please provide an outlook for the video game industry over the next year?

Although I agree with your general coments regarding "long term" industry direction, I think that your arguements have little application in the short term. Products such as the PSP GO have not been given raving reviews specifically because it is an all digital product (gamers can't easily move there existing games over).

Also, I don't beleive the nintendo would support (and infact resist) moving to a fully online distribution platform. Children still like going to the store and purchasing games. Similarly, "gamers" prefer to purchase the game as soon as it hits the shelf - who wants to wait for delivery. Gamestop allows preordering which targets a particular customer that will likley never move online for distribution.

I would find it very usefull to hear your critisism - since I am bullish on gamestop due to valuation as well as environment. Many major titles are coming out, gamestop is running at depressed sales/sq. ft. and continues to expand their store base. At 9x earnings, >10% FCF yeild - i believe this thing could be a home run.

Thanks

Ryan