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GameStop Corp. Message Board

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  • spanxds spanxds Feb 7, 2011 8:24 PM Flag

    Digital downloads will kill this stock!

    It doesn't matter how often these guys get this message, they refuse to listen. My impression is that most of them are so young that they think a couple years down the road is the event horizon for investing.

    The reality is that 20 years from now people will laugh at the notion that brick and motar outlets existed for selling software (or anything else digital for that matter). Yes 20 years is a long time, but the pressure on GME's bottom line will come long before shops are completely extinct.

    In the end, you're buying an annuity when you buy GME stock. The trouble is that not only is the term of the annuity unknown ( be it 5, 10 or 15 years), but also the yield is zero! Overall, not a good investment at any price!

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Go buy NetFlix.

    • "but also the yield is zero!"

      $500 million buyback begs to differ. GME are return free cash to stockholders, so how can you say the yield is zero??

      And the term of the annuity for EVERY stock is unknown. You just think you have greater visibility on GMEs future. Every investor has to make an assumption of the company's future prospects when they value them.

      5 years from now many, many companies will be superceded by competitors or substitutes that you have no visibility of today.

      GME could be a very different company in 20 years from now and still be prosperous.. companies don't stand still, they react to changing market conditions. GME at least is in a cash rich position where they are able to do so.

      Anyway free cash flow 20 years from now is of little consequence if you are discounting future cashflow at their cost of capital. The difference between 20 and 50 years of consistent cashflow is maybe 15%.

      • 1 Reply to hbeetroot
      • "$500 million buyback begs to differ. GME are return free cash to stockholders, so how can you say the yield is zero??"

        A buyback is not yield because it is not a direct return of equity to shareholders. It can potentially increase the future yield, but when that yield is zero, you're just getting a bigger slice of nothing. Also, keep an eye on the total shares floating. If a buyback is offset by stock and option issues to employees/management, it may just be a tool to funnel shareholder's money into management pockets.

        "5 years from now many, many companies will be superceded by competitors or substitutes that you have no visibility of today."

        Yes. Avoid all such stocks ... especially when their path to irrelevance IS visible.

        "GME could be a very different company in 20 years from now and still be prosperous."

        GME is currently a retailer. They will have to become something completely different in 10 years in order to be relevant. Why invest in a company that requires a complete overhaul? You must have 100% faith in management's decisions in creating a completely new entity which is completely out of your control as an investor. In GME's case, management has already shown that their strategy is still primarily to open new stores.

    • 20 years ago, the World Wide Web was still in its formative stages. Just a few years later, we had the dot-com boom, as everyone sold off traditional brick and mortar retail names in favor of their internet counterparts, which didn't suffer from nearly as much overhead liability and should've ended up obviating the traditional retail model. Larry Ellison, the CEO of Oracle, captured the spirit of the times in the mid 90s:

      "I hate the PC with a passion. Me going down to the store and buying Windows 95, I've got to get into my car drive down to a store buy a cardboard box full of bits you know encoded on a piece of plastic CDROM and you bring it home and read a manual install this thing - you must be kidding you know, put the stuff on the net - it's bits, don't put bits in cardboard, cardboard in trucks, trucks to stores, me go to the store, you know, pick the stuff out, it's insane. OK I love the Internet - I want information you know it flows across the wire."

      In theory, this made sense--in the future, everything will likely be delivered digitally. But when in the future? There have been enormous leaps in bandwidth and application delivery since the dot-com bust, but there have also been exponential increases the size of programs as well as associated security complications. My point is, we look upon digital delivery favorably because we understand all of its benefits, but we don't realize the downside of future complications of such a model yet.

      Also, there isn't a digital model that can adequately replace the used-game business. I guess the American consumer is just going to change fundamentally going forward, and buy all of his software new and at full cost, without a transferable license. Unless you're one of the Larry Ellisons of the world, you can't realistically believe that wet dream is coming to pass anytime soon.

      • 1 Reply to ebitdammit
      • Exactly - changes are customer driver. Digital deliverly must either increase buyer value or lower buyer cost to be a credible substitute (See Porter's "Competitive Advantage").

        At present it does neither (at least with regard to full releases) because publishers have shown they aren't prepared to pass savings on to consumers and because of the loss of retail value.

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