1. The digital demise, the next blockbuster thesis not true. I think the majority of shorts think that there is a technology shift which will make GME obsolete. The AAA game releases did produce software sales increases of 9.9% showing that consumers still are buying video games at retail stores.
Download speeds are still too slow and security continues to be a problem as now the xbox faces phishing and hacking problems. These are major barriers to a widespread acceptance of a download only business model.
2. GME got killed on hardware because no one bought the wii. The answer, the wii u, which will be released this year to tons of pent up demand. It will be the crazy must have Christmas gift of 2012 and solve the hardware woes. Also, on the hardware side the tablets are in less than 10% of the stores. GME needs to get these in more stores and give better guidance. We know you are taking in trades, but are you selling any apple products.
3. During the holiday period, GameStop repurchased two million shares at an average price of $22.38, or $45.2 million worth of stock. As of today, the company has approximately $329.8 million remaining of its current share repurchase authorization. A floor has been created, at these prices GME can come in and buy over 10% of the float initiating a short squeeze. I think this limits the downside risk tremendously.
4. We are now debt free. Issue a dividend, BBY does. They can afford at least a $1 dividend and have money left over to make technology acquisitions.
Sales were flat and guidance was reconfirmed and we got shellacked like it was an oh fudge we are going out of business cut earnings press release. I think the downside is limited as long as GME continues to buy back shares. Strong 2011 Q4 software titles will sell used in 2012. 2012 also has strong software titles and the wii u. I still think GME is a strong buy as we have not yet entered the next console cycle. GME speaks tomorrow at a conference hopefully it is not fluff and we get more long term strategy.
GME needs to stop the buybacks which for almost all co's never rewards share price and thus does not reward shareholders. They should initiate a 5% dividend immediately. At this level they can increase each year at a nice rate and still accumulate cash and grow the company.
A dividend is now necessary in the markets going forward and for the next 10 plus years. Things have changed and they won't change back soon. Those who get on the train now will benefit more then those late to the dividend party. The time is now for GME to initiate a generous dividend and reward patient shareholders.
Last a dividend pushes out all the shorts because THEY have to pay up every quarter from their account. this makes it very painful to be short a dividend bearing stock. Buybacks don't cause any pain and this is one heavily shorted stock. GME needs to get the shorts off this ticker and onto an easier target. Until then shorts will slam this down, spread false rumors, use scare tactics, etc.
One thing I will say is this, I was a basher of the original Wii and ate a lot of crow along with many others after seeing the initial product. Even after that, I will again bash the Wii U, at least this time I can say that I think motion gaming is niche and somewhat played out and they are trying to push it further where I think it is much closer to dead and or dieing.
FYI, Vita which by many articles has flopped in Japan so far, will do the same here.
I’m gonna tell you why the wii u will do well, because of its ancillary abilities. Take a historical look at why certain consoles sold extremely well. It was because they not only played video games but they provided the ability to eliminate buying another electronic device broadening its appeal and user base.
PS 2 (Two cycles ago)- was the biggest seller because it had the ability to play dvds eliminating the need for a dvd player.
Wii (Current cycle)- eliminated the need for a streaming device for Netflix. Also most importantly expanded the video game user base drastically because of the easy ability to use the controller. The controller is essentially your body. When all my 60 year old Aunts and Uncles own a wii and are playing video games for the first time in their life you have to take notice.
Wii U(2012 cycle) The wii u will have a tablet offering tablet reading apps and the ability to offer portable gaming. Consumers that have not bought a tablet will consider this a “two birds one stone” especially with young kids. My brother wanted to buy my 4 year old nephew a tablet I thought he was crazy. The wii u will offer a tablet/portable device for these children. Nintendo has also said they are making a strong effort to appeal to the hard core gamers with more third person content. I still think there are many people who didn’t buy a kinect or move device separately because they knew it would be included in the next consoles. the wii u sales will be more like the xbox, xbox 360 sales, where the xbox did well and the xbox 360 did significantly better.
Nintendo gets it and Microsoft is showing signs that they get it. Gone are the days where the hardcore gamer rules. The systems are now more inclusive and appeal to a wider demographic. Look how far the gaming industry has come as a whole, 10 years ago it was mostly composed of teenage boys now you have almost every demographic playing some sort of game from social games on facebook, to Tetris on a tablet, to Call of Duty on a console.
Who would have guessed Just Dance 3 was gonna sell well over 3 million units. GME stands to gain from a continuing burgeoning industry that appeals to more demographics. What if I was to tell you for the first 25 years of film only action movies were released, and now we are starting to see romantic, drama and comedy movies.