On that count, probably because they ran out of supply. The demand is there and they can't capitalize on it.
Also, several people have pointed out that GME's games for the new platform are disappointing. That could point to failure to realize sales in the near future. Earnings coming up NOV 21.
My feeling is to watch it closely as it is a security that a lot of pro's are probably (pay attention to earnings) going to want to own this going into the end of the year. I am long JAN-13 CALLs.
Same here in Houston. Two Gamestops, three customers. One Best Buy - Line of over 100. I dont get it.
Funny also to think about, do shorts hope the console bombs because that would be a disaster, OR do we hope it succeeds because the new console is all about digital content distribution......Tough call.
I'm not saying it means anything but it was interesting to visit the store last night. There was pizza!...two customers and four employees. Best Buy was very busy but no pizza.
One town in the midwest. Sure it was different elsewhere.
In the near-term Gamestop will have tremendous earnings. EVeryone is selling back their old PS3 devices for new PS4 gear, and those who aren't are going to take advantage of the huge discounts for the used PS3 games (which have huge profit margins for GME). Once a solid earnings report is released, the Shorts will get out and it should short squeeze. At some point, this stock will go through a short squeeze but the question is when.... Long-term, I agree they will not sustain, but that will be a few years from now.
Digital downloads will one day be prominent. I plan on doing it right away... BUT (for instance ps4) until consumers fork out the cash to benefit off of digital downloads by purchasing the expensive PS vita or PS Vita TV when released, then what fiscally responsible consumer would spend more on a new download then on a cheaper used title? Until that happens, people will continue to sell back games and buy used (especially with GME's bundle deals). Remember, the primary audience for video games is still the adolescent and college students whom are all strapped for cash.
I agree that they will be able to sell big, fat AAA games for a while longer. But, there is still a lot of problems with that for GME:
- AAA titles are getting severely reduced. Developers just arent putting up the money any more. Less big titles means less games to sell and re-sell. New trend is sell small game and then lots of DLC on top of it. Or, F2P and then DLC/add ons on top of that.
- The new machines (if they are successful) are all about e-commerce. Notice Amazon's recent web site to sell PS4 content (digital or disk) direct from the console. Same for X1 and PS4 - they will have gamer's wallets due to F2P and DLC so will be easier to get them to buy direct.
- New machines make even big games easier to download. Note the new Sony Mobile App to buy from your mobile. Games dont have to finish downloading before you start to play. 3DS could be all DLC soon and their games arent nearly as big.
- Wont be long before it costs more to buy disk then it costs to download.
But, here is the kicker, maybe bulls are right and it takes three more years until digital totally takes over. The problem is the stock is selling at 20x pe. Thats twenty years..Maybe its a buy at 5x; not 20.
They provide the data on margins in their regulatory documents. You got some things wrong but you do understand the basic gist of their model.
Right now a little over half of gross profit comes from resales. Earlier in the product cycle (I looked at Aug 2007 10-Q) sales increase significantly as a result of the new product sales (which carry lower gross margins) with used products increasing but not nearly as much as new. Used products made up less than half of gross profit after the last product introduction. The new hardware sales did literally double but margins are low. New software increased 50% in last cycle and margins are o.k. Used sales ticked up maybe 10-15% and this is where their margin is really good.
Gross profit on used product is consistently around 50% New hardware around 10% and software 20-25%
Bottom-line sales spike, gross profit increases by maybe 10-20% and that is enough to temporarily drive profits up through the roof. It remains a temporary thing though and this is the last cycle before the ultimate collapse in their model so low multiples should be applied to the shares. Doesn't mean the market will actually do that but insiders will dump in a major fashion and they will eventually figure it out.
I keep reading on here about how people have visited Gamestop's stores and notice discounts all over the place. If you invest in a stock (or short), you really need to do your research on how a company makes net-profit.
Gamestop makes a majority of their earnings off of used game sales. All money made is 100% profit. There is only a cut-back for new game sales. All these discounted games right now are old generation releases they're making pure profit off of. This month the new systems will release and should show a spark in GME rev. The following monthes are when GME should really spark, as that is when gamers will be selling the initial games they bought and buying used ones. Look at the company's old charts if you don't believe me. It is their marketing model.
GME is not hurting now. Maybe they will in the coming years due to digital downloads, but until that landscape finds a way to provide titles at cheaper prices to combat used games, GME will stay in business. At least stay strong for the next year.
It's not discounted to bring in business, it's discounted to get it out of the way for the new stuff. Board has done 2/1 stocks splits at $54 in past and if they do so again at earnings, this stock could double again in 6months given growth projections. Not enough high speed broadband throughout the country till 2017 for digital downloads to make any impact.
I agree. The next 6 months look good. The last playstation was released 6-8 years ago. With a new console comes new games. Game Stop generates revenue on used and new consoles + games. I would simply hold onto this stock and not worry about bad earnings. Patience....
after looking at the launch numbers a bit closer, i think the top in gamestop is still 6 months away. the initial launches look to beat previous years, so that will keep gamestop rolling for a while. hold off on those shorts, there is upside potential for the next six months.
i agree that sometime over the coming 4 months is the inflection point in the fortunes of gamestop. as soon as apple really launches their gaming initiative, that will suck away players and development, the new consoles offer nothing that compelling, just slightly better graphics. the double-edged sword of better graphics is that development costs are higher for new launches, which means less of them. and there is almost zero truly innovative new games on the consoles, because it is too bloody expensive to develop a new title, so they can only justify it for franchises. all the real innovation is happening on digitial platforms where gamestop has minimal presence. as games transition away from a physical disc, gamestop's profit engine of used games will go away. gamestop has fixed expenses that cant be reduced as sales drop and once it is no longer cash flow positive, they will have to stop the dividend and stock repurchase program. the only thing in their favor is that the management team has proven to be very adaptable, but even they cant adapt fast enough to save the company. the only question to figure out is where exact the top is???
profit taking today. People getting nervous before earnings. heading back down imo and break into 40's and even lower when earnings come out. stopped by a few gamestop stores and everything is discounted just to get business. amazon and best buy giving GME a run for their money
So the GME nightmare is beginning to unfold:
- Launch titles are terrible on both consoles. Check 'em out if you dont believe me.
- The big current releases BF4 (bad reviews, terrible sales) COD:G (terrible users; terrible pre-orders) are selling way, way off. (Note the ATVI press release about channel stuffing).
- The new consoles show up with hardly any reason to buy them. Slightly better graphics, at best. All the real games run on old and new gen so no game reason to buy new. Why buy next gen?
- Industry gets stuck: games need platforms so hard to spend a lot of money on a title for new platform with poor installed base. Old consoles were dying anyway but slowly.
- Nintendo already dead except for handhelds. Wii literally dead and WiiU not far behind.
- Weak 2014 line up getting delayed: Destiny; Titanfall; WD; are a ways off now. GTA VI is five years away.
- Meanwhile the beat goes on: digital pct of sales rising; game streaming; Steam/PC; Apple; mobile; alt consoles; indie; downloading games on the new consoles; F2P; DLC.
Just waiting for the roof to fall in. Q1 2014 looks like it.
My biggest concern is that the forward P/E ratio is starting to getting larger than it has been in a very long time. Just concerned its moving up to much at to fast of a clip and earnings while good, wont be as good as expected. I guess time will tell, hopefully we both sell before it drops. Either way, I believe it might be best to sell before the Jan 2014 financials get released in case the earnings arent as good as we all thougth.
I'm in the same exact boat, average cost is $22.48. Less if you take the dividends that I've received into account and I'm wondering the same thing, since I originally bought this as a value play. Great dividends, excellent cash flow, etc...
I'm going to wait to see how things look once the new consoles start selling.
The million dollar question is how far up wil it go. My average cost is about $21 and since its my largest investment by far, I am temped to sell some but I wont since I know it will go up upon between now and Christmas. I was thinking about putting an $80 sale price which is where the top of the estimate is. What is everyone's (Long's only) thoughts?.