I'm sure the shorts will get a kick out of this one. However, I am still long the stock regardless.
14:08 GME Gamestop downgrade details (35.10 -0.08) -Update-
Wedbush downgrades GME to Hold from Buy based upon valuation. The firm mentions mgmt's inability to forecast its allocation of Xbox 360 units and the company's reliance upon used software sales and margin growth as a driver for earnings growth. The firm has lingering concerns about the console transition; and questions about GameStop's market position as a destination for "hard core" gamers.
That's the main appeal of GameStop. You can trade used games, plus you get to talk to hardcore gamers who can give you good advice. Everytime I go into a GameStop, the guys at the counter are talking in great detail about some game. You can tell they're hardcore.
I'm very confident about the future of Gamestop but if I had to pick one thing that does kind of bother me it is the used games. I think currently a big reason to shop at Gamestop is the used games and being able to easily trade in old games. If some of the other players start getting into the used games business in a big way then I might rethink the value of Gamestop.
I just wanted to comment on a little blurb from the article I just posted. It states:
The firm mentions mgmt's inability to forecast its allocation of Xbox 360 units and the company's reliance upon used software sales and margin growth as a driver for earnings growth.
Obviously management has no idea how Microsoft is going to release their system. Sure, that might hurt earnings in the short term due to lack of supply, but in the long run everybody who wants one is going to get one regardless of when they buy it. Also, its good to see that GameStop is able to grow earnings through their used game business. I honestly can't understand how they are looking at that as a negative. For now, its going to be the used game business thats going to drive GameStop's growth due to the new console rollout. But once all the new systems are released then both new and used games are going to drive GameStop's growth.
Thoughts and comments are appreciated.
"But once all the new systems are released then both new and used games are going to drive GameStop's growth."
How do you know that the new games will be successful? You are assuming that the new consoles will sell in large enough volumes AND the $59.99 games for those consoles will sell in good enough quatities to make money. Once they start selling these $59 games for $39 then they will really suffer as these games are so much more costly to make. Everyones margins will be squeezed.
As far as the relying on used games maybe they think they need both a robust used AND new games sales to make this a good investment from these levels.
I think the stock needs to come back a lot to make it a safer long term buy for many.