% | $
Quotes you view appear here for quick access.

GameStop Corp. Message Board

  • mike7313 mike7313 Dec 14, 2008 5:28 PM Flag

    Margins is all that matters

    The stock of GME is down so much more than other retailers because the "smart money" knows sales will be up at the expense of crushed margins as have never been seen before in this genre'.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Jesterbunk,

      Just stating the obvious; if you know all the answers, cause I sure don't, why are you wasting your time on a message board putting down GME when you could use all that knowledge elsewhere to make money.

      Unless you're short, and that would mean you're having a bad day!


    • You make some good points but I think you're focusing too much on a story that is an old one - used games margins. That story has been around for years. I think you're missing the bigger picture of what's coming, and how their business is under attack, and their lack of response beyond a short term plan of adding more stores. That's not even counting the potential hit due to the economy. I agree games are holding up very well but so long as the fear is there about the consumer, that will be reflected in stocks which rely on consumers.

      For all the other points, we're probably both repeating ourselves and should agree to disagree.

      Btw, I think you said GME is up 35% since its earnings. Actually it's only now, at 24.42 currently, back to where it was a week before earnings after rallying from the 17-18 lows.

    • Tell me rbutler, do you use your internet anonymity to attack everyone, or is it random, or is it just people who say things you don't agree with? And do you find that approach to be an effective one?

    • You're just repeating yourself rather than addressing the relevant objections to your thesis.

      the "industry" growth sales you refer to are the NPD, for only new games/hardware, and only in the US...those figures do not include used game sales or international markets. The used game sales is more profitable than new, and GME owns that growing, lucrative market. That's also why you cherry-pick your focus on sales rather than earnings. Go do your homework on margins and earnings, and then get back to me. Look at same store MARGINS growth.

      More importantly, you are comparing apples to oranges. All that matters is what is expected vs what will be a surprise. Stocks are about expectations and beating expectations. The stock price reflects drastically lower expectations--for a variety of reasons, most unjustified and not having to do with GME itself, but macroeconomic factors. That presents a buying opportunity for the one industry that is a major exception to the current economic factors. NPD even suggest that the industry will get a *boost* from the recession.

      Your comparisons with SBUX and Krispy Kreme are irrelevant because SBUX and Krispy Kreme do not have used video game business. GME just purchased about 300 stores in France--how, exactly, does that cannibalize their existing stores in the US, Germany, Spain, Italy, Australia? Look at where the growth is coming from.

      If you want to show that GME is a 'sell' rather than a 'buy', then you need to show us what the expectations are and argue for why GME won't meet those expectations; that's what fundamental value investors do. I have already argued why the expectations are low by highlighting discrepencies between the appearance and the reality of the company's fundamentals, business model, earnings-generating ability and international growth opportunities. You keep on talking about the 'appearance', without comparing those 'appearances' to the drastically lower expectations, and without penetrating beyond the appearance, to the reality. Since GME's stock got beaten down that indicates current, lowered expectations for GME and the whole industry; the NPD has shown that the vg industry is alive and well, and GME's stock will gradually reflect that.

      Last year's games were for fewer consoles. there are 2.8 million more wii's in the US than just two months ago. Xbox sales are soaring with the price cuts. And rather than focusing on new games, as you keep on doing, you should recognize that the market, as usual, is flooded with too many new games. Publishers shoot themselves in the foot doing that...b/c gamers simply buy the best during the holidays and rent/buy used the rest after the holidays. That helps GME. Look at what the expectations are for 09 video game sales, and look at how that is calculated by taking into account the number of consoles on the market and the attach rate to those consoles, and to the new games out there. You only focus on the new games, b/c the market research only focuses on new games, but GME is in the used game business. So each new console means more new AND used game sales.

    • So Mr. Know-It-All-Jesterbunk, what are you doing wasting your time on the GME board!

      Shouldn't you be counting your money or investing in some other stock?


    • "SSS growth last year was huge because it was the accelerated growth phase of the current gen consoles"

      And this year industry sales are growing about the same speed (31% YTD vs 34% for all of 2007), and yet GME's SSSS are a fraction of last years. You haven't explained why that is, and how it can be turned around. If industry sales growth slows from here, as I believe it will due to first half comps against Smash Bros + GTA + Kart, they're in even more trouble due to their higher store footprint and overall expenses.

      "The multiple got beaten b/c, if you haven't noticed, the multiple of all stocks has gotten beaten down"

      I have noticed, and I think the GME multiple would have got beaten down to (eventually) low single digits anyway. It just happened faster than I expected.

      "The insiders are buying again"

      Token buys. They each profited $14M in April, then spent $180K last month. In other words, 1/77th of their recent profits put back into the company, and 76/77ths (before taxes) kept safely in their pocket. Not exactly what I call taking a risk. They make token buys so people like yourself think it's cheap and put all of your money (100% risk) into the company.

      "And as GME grows, it gains economies of scale, so it needs less in SSS to generate equivalent bottom-line earnings power"

      They can't grow store count forever though, and they're already near saturation in the US. That can cannibalize SSS. Much of 2008's earnings growth has clearly been from new stores, not existing stores, and that's not a long term story. Ask Krispy Kreme, or Starbucks. Again when they hit store saturation point will be when digital revenue is really taking off, and at that point they are totally screwed. Existing management will be long gone with their millions, leaving bagholders behind who talk about the benefits of pawn shops.

    • 1) SSS growth last year was huge because it was the accelerated growth phase of the current gen consoles, and for Q3 07 vs 08, was skewed by Halo 3. GME was also hurt on the top line by the exchange rate difference.

      2) The multiple got beaten b/c, if you haven't noticed, the multiple of all stocks has gotten beaten down. GME got beaten down more, b/c it's a retailer, and b/c people thought the VG industry would not withstand the recession. NPD numbers show otherwise--which is why the stock is up over 35% since they reported earnings.

      3) Insiders sold when they did b/c they are smart. The insiders are buying again, and as they say, insiders sell for many reasons, but buy for only *one* reason. They know this puppy is undervalued. Their PEG ratio indicates as much.

      4) If you look at same store *profits* instead of same store *sales* you'll see how great GME is doing. And that is due to their used games business. A used game costs *less* than a new game, but makes more in margins. So if your valuation of GME is based on normal retailer metrics, you'll be way off--GME is 50% pawn-shop, and as a pawnshop, margins are more important than sales--even though sales were skewed by Halo 3 comps last quarter, and the exchange rate, since most of GME's growth is international. GME's international growth is not b/c US is saturated, but b/c international markets that GME targets are growing even faster than the US (see my recent post on Canada).

      5) Of course GME doesn't have to get SSS up 400%. They consistently sandbag their expectations, and all the doom and gloom of a recession is (wrongly) priced into the stock after Q3. GME is a *margins* play--it's about quality sales. Sales from consoles look good on the top line, suck for the bottom line, sales from used games are the goldmine. And as GME grows, it gains economies of scale, so it needs less in SSS to generate equivalent bottom-line earnings power. Investors care about earnings, and quality earnings at that. GME also got beaten down b/c of the acquisition last quarter--on non-GAAP basis, earnings beat expectations. There won't be another acquisition this quarter, so for the same irrational reasons it was taken down, it will get a boost.

    • SSS in Q4 are expected to be 4% to 5%, with SSS for the year expected to be 10% to 11%.

      This compares to last years SSS of 17.4% for Q4 and 24.7% for the year.

      Console game sales are +31% YTD and were up 34% in 2007, so the growth in new game sales is about the same as last year and GME's comps have fallen significantly despite all the benefits you talk about of their used game biz.

      That's why the earnings multiple has dropped so much IMO, and your arguments about price conscious gamers and used game value seem to defend (and not very well IMO) what they currently have, and are therefore no recipe for strong earnings growth or multiple expansion from here.

      How would they get SSS back up about 400% from current levels, to match their 2007 levels, when they're under attack from all sides with first use game coupons, mass market retailer price discounts, digital distribution, etc.? They can't raise prices. They can't lower prices. Their US store count is near saturation and this could be causing lower SSS as they continue to open more stores within a few miles of existing stores.

      The insiders saw the writing on the wall when they sold around $55 earlier this year, and that was before the economic crisis. They knew their comps were getting worse, and competition was getting worse, and nothing they've said since then suggests they have any plan to counter any of it. The bottom line is the industry is moving towards more digital revenue and GME is still adding brick and mortar stores. That's a recipe for long term disaster.

      Most cycles have been 5-6 years between the introduction of new hardware. 2012 would be 7 years. I think that's reasonable. That's not to say current generation sales would fall off a cliff by then. Personally I think the hardware manufacturers should wait as long as possible but one will have an incentive to launch before another, and the other may have to react to that.

    • I get the point about the coupons, but it doesn't change the fact that whatever publishers try to do, gamers expect games to have residual value. if the game doesn't have residual value, or has *less* residual value due to DLC, then that will factor into how much gamers are willing to pay for the new game. It's like trying to fit an oversized rug in a small room...if you pull on one corner, the other corner will stick up. Traded in games will be traded in for less and resold for less. That's fine--that's what publishers should do; make better games, extend their life, and find ways to keep gamers from trading them in. But there will *always* be games that get traded in because there will always be games that not all gamers like after they buy and that not all gamers want to keep. By denying or reducing the value of traded in games, publishers would essentially be charging more for them. Supply and demand would ensue...sales would go down. They'd shoot themselves in the foot.

      I agree that the Nintendo DSi has successful digital distribution, from what I've been reading. The video game market is much bigger than that, though. The Nintendo Wii is the real surprise story for the generation--and casual gamers in general. That's where the surprise-side growth will come from.

      No way you'll see next-gen consoles in 2011. It will take years before the publishers really harness the power of the PS3, for example. Hopefully God of War 3 will show us what the machine can do.

      SSS will increase due to the rising number of installed base consoles. Just in the last two months, you have 2.8 million more Wiis in the US. They will eat up the used games first, along with the new games that come along. And the PS3 price will come down sooner or later...likely after the holiday season. All that will help SSS.

      You're comments are not unreasonable, but neither are my disagreements with them.

    • History proves otherwise. You are in a period of extended economic weakness and severe multiple contraction (very high equity risk premiums), which makes it impossible to make money in equities. As I said, your homework will prove irrelevant despite your insistence.

    • View More Messages
36.01-0.63(-1.72%)Nov 27 1:01 PMEST