As a former GME long (I announced, after several months of being a bull, that at $32 GME is a short) that I'd be buying back in at $26. Now that it's here, I'm going to stick to my short position (technically, I'm long puts), and here's why.
1) Bad news from ERTS and bad news from THQ. Nintendo's sales were just 'ok', but the stock is taking from the strong yen (which is bad for Nintendo the stock). Since a lot of video game industry stocks trade together (based on hedge fund computer programs), when one of them goes down, it tends to drag the rest with it.
2) Impossible comps to beat. Now, this should not be a surprise...but what should also not be a surprise is that when impossibly tough comps are not beaten, GME goes down anyway. We saw this last fall with Halo 3 comps in October. There was no way October 08 was going to beat October 07, nobody was surprised by this, but the stock tanked anyway. This will happen again.
3) Options expiration friday coming up next week. Like clock-work, GME will get dragged down to the lower $5 increment. instead of being dragged down to $30 from $33, it will be dragged down from $27to $25 or below.
4) GME will announce earnings in a few weeks, and although they will likely be in line with first Q estimates, that will be a disappointment. Remember, GME needs to hit the lights out of the park for the stock to go up. Meeting expectations is not enough for this. the 'expectations' are almost always higher than the longs think. And some analyst will ask about digital distribution, news articles will come out how GME is the next Blockbuster or, even worse, Tower Records, and then GME will be on the defensive again.
This stock has a lid on it, and that lid won't come off until a few things happens. 1) the stock tanks badly...like, back down to $20. 2) a great new line up of blockbuster games come out to beat previous years comps...don't expect that to happen for several quarters. 3) A big rebound in retail in general and favorable market conditions (which might happen...but GME might get left out of the party anyway if 1 and 2 don't happen).
so there you have it. Sorry longs...GME's used business will do fine this Q, but the stock will tank anyway.
Good thread with well-reasoned opinions. I've been out of GME for over a year, but decided to get back in today. I expect analysts to come in and support the stock at these levels, and am looking for a bounce tomorrow based on this support. After that is anybody's guess. I think the E3 conference will go a long way towards telling us what to expect for the industry for the second half of the year (and especially the holiday season).
I am also looking at ERTS right now, although I am hesitant to buy at these levels. Hopefully the stock will pull back a bit. I think EA Sports Active is going to do extremely well with the Oprah audience, and its position as the top selling video game on amazon for the past 4-5 days confirms this. Oprah's personal trainer is behind the game.
As I expected, GME broke through the support and is tanking yet again off of news that should not have been terribly surprising.
The longs will rightly object that comps are down b/c of tough comps, not the recession, not DLC, not Wal-mart's flakey used-game kiosks, etc. But the stock is distinct from the company, and the stocks performance is, quite often, based on superficial interpretations of the news and short-term performance/forecasts. That said, the expectations in the short-term were too high, and there are too many ultra-bulls out there that always expect GME to beat expectations. Obviously, the game is all about where to gauge those 'expectations'.
The 2nd will obviously be much better than the first half. But where does the stock go until then? Create a calendar of major news events what impact they will have on this stock for the rest of the year. Bake in all the NPD reports that will suggest doom and gloom until these blockbuster software titles come out in 2nd half. Bake in an actual, and not merely rumored, PS3 cut. We all know it will happen, but when? And how much lift will this bring? It surely won't be a surprise when it comes.
Lastly, how low will this stock go after the Q2 report? we know Q2 won't be any good, since it will also come with lousy comps, the lack of a stimulus check putting money in pockets, the lack of blockbuster titles, the continuing lousy economy, etc. So expect this puppy to stay flat or go lower. And then buy it back as we see a run up before Q3 earnings.
Patience and discipline, friends. Not about being long or short, right or wrong, bashing people or companies. Now is the time to be patient. Let it come down...hopefully, there will be another GME crash, as we saw last year, under $20, and then slowly buy back in. But there will only be doom and gloom until NPD numbers in Sept and October.
Good luck to all, longs and shorts. both can make money on this stock at the right time.
As a great investor once said when asked how he did so well: "I always bought too soon and sold too soon."
Me personally...i'd rather get in a long position at the $22-$24 level and possibly see a small hair cut in the next three months than to look back at today when GME's $30 in the fall and slap my head for "waiting for a bottom below $22" ;)
"where will the upside surprise come this year, especially in light of the tough comps?"
-motion controllers for PS3 and/or 360
-the best holiday season game lineup ever
-very probably a new blockbuster title for Wii announced E3
When will people wake up and realise that it is nothing but bad comps pushing down sales in March/April. Things will recover once the blockbuster titles hit.
Something to note is that it's likely twice as many games sold over 100,000 units this April compared to last - that is a sign of a healthly industry to me.
Here is some more news on why GME will continue to go down....
Slowing Wii console sales and lower wii game sales. Nintendo has already announced slowing console sales and all the publishers are and should be worried about Wii game sales. for GME, this is very bad since much of the upside surprise of last year came from wii...where will the upside surprise come this year, especially in light of the tough comps? in fact, you would need at least two major upside surprises for GME to go back to the mid $30s this year--one surprise to compensate for the slowing wii and another to compensate for the tough comps.
here's some more on the 'plummeting' vg sales for April.
Add to that the continuing worries of digital download, which are a dark cloud over the short and long-term prospects of this stock, and you've got yourself a recipe for a pretty decent short.
Appreciate the info and can't really make an argument against this going down since that what this seems to like to do and even good news can't stop it sometimes.
But I think you are reading a little more negativitiy into that article than is actually there. It is certainly not positive, but it does make the point of the impossible April comparison. It certainly also points out the Wii slowdown but I don't think 3 years like Nintendo has had makes it a fad that is ending. I just think it's normalizing. The past 3 years were too over the top, IMO.
I also don't think the Wii and its games were GMEs upsides as much as you do. I think GME is still primarily home to the hardcore and also that used games drive them. I could very easily be wrong here, but just my opinions.
Price cuts and E3 suprises could boost the stock, but I'm not holding my breath.
Digital download threats come and go although they get louder every time. Unfortunately these threats do hit the stock but I don't think they will take away any measurable GME business for years to come. Too many consumers are simply not ready for this or don't want it.
Finally, the CEO made a remark on the DLC subject and said they are aware of it and planning for it and he would be disappointed if they didn't have a major announcement regarding their plans for it by year end. I heard this either on the last CC or in the interview where he boldly told Sony and Nintendo to drop their prices. No one seems to bring this up, but he very clearly made the statement. I have no guesses as to what the major announcement would be.
I think you are wrong. GME has always had those Amazon or toy store type guys trying to out do GME. GME is like MCD, often imitated but never duplicated.
This is a very satrong buy in this price and expect GME to come out and reiterate again that they are on track for a nice 2009.
I do thank you for your opinion and that's what makes a market
I know a lot of spread traders like the dollar increment options. Might just be that's its easier for them to calculate their risk/reward.
If I can sell the june 25 put for $1.80 and buy the june 24 put for $1.15...i get a credit of .65 per $1.00 of risk
So the spread risk is one dollar and getting .65 so really risk is .35...most I can lose is .35 and getting .65 for that.
That's a real good risk reward.
Those prices may not be available at market.
I went ahead and bought the 27 call and sold the 32 for a net debit of 1.60. Looking to get out prior. Time for a bounce or its a bad trade
Your completely right. THats the sad story with this growth stocks if they perform in line with the industry they get clobbered.
I chased GME from 33 all the way to 16 bought more and more and more sold with an average price of 24 at 30 glad I did this stock will probably not hit those highs again in a long time.
No new games coming out. Its a buyers market in veiod games cazy as that may sound.
Everyone already has an Xbox 360
The nintendo Wii is fun for the first three months.
PS3 is too expensive for the struggling middle class and games too!
Gamestop has been offering DEEP! discounts for a couple of months. Now if you trade 3 selected Wii games you get the new EA Active for free.
No new games coming out?
The Sims 3
Wii Sports Resort
Halo 3 ODST
Rock Band Beatles
Uncharted 2 Among Thieves
Batman Arkham Assylum
Modern Warefare 2
Dragon Age Origin
God of War III
Assasins Creed 2
Grand Turismo 5
Marvel Ultimate Alliance 2
Mass Effect 2
Final Fantasy 13
There are huge a tonne of huge games coming out over the next 12 months.
Expect big annoucements game-wise for the Wii soon also.
Add in the strong possiblity of motion controllers for the 360, and possibly the PS3 coming up as well and you have a supercharged console cycle.
I am waiting for <25 and/or a good conference call. I dont think this will require too much patience. Really I'm playing a retail second half of '09 recovery. Options expiration below 25 would be my entry.
Dog will not help with frustration. crz
just about every other retailer has outperformed GME YTD. if you want second-half 09 retail, why GME? too much doom and gloom hanging over this stock like a dark cloud. remember Q3 earnings? the shorts destroyed the stock. wait for that kind of capitulation, and then get back in, but just for a trade.