A sales decline of 0.3% during the holiday period does not seem terribly bad to me, considering the NPD sales figures. Also, the greatest weakness was in the hardware sales. New software sales (higher margins) were up 9.9%, and pre-owned software sales (highest margins) were up 3.5%. This press takes us through 12/31/11, I believe, so that leaves only one month left unaccounted for with regards to their impending EPS release. Can January be so incredibly bad to cause GME to miss their EPS guidance?
Here is a balanced article about GME that I found at Seeking Alpha today:
Does anyone know who else besides Jim Chanos is shorting GME? It is turning into a very crowded trade. Does the recent large increase in short interest reflect bad news not yet apparent to most investors?
Both January and February were pretty terrible per NPD. So even if GME beats those numbers just a bit, like you pointed out in comparing NPD to their last report, I think that will be viewed as quite negative. And I don't see them blowing out numbers completely out of line with NPD.
The video game industry is cyclical. Software is micro and hardware is macro.
We are at the end of the hardware cycle. The hardware numbers will be horrible. I would be expecting a price cut on the consoles some time this year. The other big problem is how bad is Europe. GME has 1384 stores in Europe and almost 1/3 of all stores are international in Canada, Australia, and New Zealand. Europe really dragged down holiday same comparable store sales. You had small growth in USA and negative internationally. You don't see GME jumping all over Game UK when it has been well known that Game UK was going bankrupt. And from the latest reports they may have missed out, but whoever buys that company they may break the company apart and GME may get a smaller portion.
The positive, GME is selling a ton of DLC which is accounted for in the category other, which is a hodge podge of subscriptions and accessories. The other category has the second highest margins after used and I would expect to see an increase in those margins with more DLC sold. You also have the huge growth of the used apple products. You don't expand to that many stores and than issue a press release if that program is not making money. Also the growth is exceptional when you realize you can't order used apple products, you are reliant on trade ins.
NPD and meta critic show the strength and quality of the holiday release games. None of those games except BF3 required an online pass so there is no incentive to buy new. I like to think the NPD looks like crap because the holiday games, which are the paramount games of this console generation, are being bought used. The flip side of the coin is everyone is playing these games longer than normal and not buying any games.
With GME not going after Game UK (as of yet) I would like to think they are using their cash for either share buy backs or digital expansion. The earnings report will be important but the most important thing for the future of GME will be E3 and concrete information on the new consoles.
I don't think they have ever played a video game in their life. Xbox live has been around since 2002 and Playstation network since 2006. DLC is nothing new, it may be new to the shorts, but not gamers. If GME is selling DLC in the current format for consoles, which is predominately add ons not full game downloads, I don't see how they can be pushed out of the market.
They also have a solid, though under developed set of diversified digital businesses that address digital worries. Kongregate = social and free to play. Impulse = full game pc downloads. Spawn Labs = streaming. They neeed to invest and leverage these businesses.
Wall Street wants growth and they see what happened to blockbuster, sam gooddy, et al. They are making a big mistake of not breaking apart digital gaming, and instead lumping it together and thinking that explosive mobile and social gaming growth (which accounts for most of the digital segment) is going to crush GME.