GME Going to $100 - here is why...Part 2 of 2 (original)
From the last quarterly results we see a lot of positive things.
1. Digital business still growing fast in fact if you were to split that business out of GME (which I won't be surprised if investors one day ask for the split) this portion of the business would be worth a billion or more.
2. The refurbishment of their games AND devices to increase sales of NEW and OLD devices is a genius move and that business in itself fuels all portions of the business mode.
3. Their niche and community is really what makes it all sync without that these other parts of the business don't work.
4. The retail portion of their business is needed because of the arguments mentioned earlier about moms and kids walking up to stores and needed credit for things, etc.
Gamestop has purchased 30% of their over 3 yeats stock meaning EPS for this cycle is going to higher for this cycle than the last you can argue that maybe less people overall are purchasing via gamestop vs. amazon but the community is strong.
Gamestop has the online business and more sales in the stores provides a platform to channel users to the online business this is a new business that wasn't there before and will make up one day more than 30 to 40% of the business and at a really good operating margin. The refurbishment business allows people to trade their games for other electronic devices that still gives it a good margin, this is also another business it had before.
Gamestop will see 15 to 20% growth in REVENUES and EARNINGS this cycle and should probably peak in about 2 to 3 years and when you have all of these businesses all moving in the same direction...UP...you have earnings of 5 to 6 dollars a share and with a p/e ratio of 15 to 17 you get $100...oh yea...the amount of shares short helps a bit :)
This company will continue to beat revenue and estimates numbers for a year or more...nevertheless, i can forsee the stock stalling or dropping a bit given the recent run....no worries i am collecting my dividend at a yield at 6% :)
Or a more accurate and truthful version of the story is they haven't grown earnings in years, and next cycle looks like current cycle except with even more digital downloads bypassing GME. For example EA will soon be at 50% digital revenue. Virtually all the money they make via micro-transactions and season passes bypasses GME completely.
Limited earnings growth plus ongoing trends away from retail (decade low sales recently, i.e. even lower than during last cycle transition), puts a fair P/E closer to 10, means a fair stock price closer to $30. This is also evidenced by GME not buying any shares over $25 and the insiders this week showing their intent to cash out by starting trading plans.
Here's a tip for all of you shorts: All digital is not the same.
Digital is comprised of a couple categories: PC, Console, Smart Phone, and Tablet. In those categories there are full game downloads, extra content know as DLC, Subs/Ads/other, and Mobile/HH.
Only full console game downloads will f GME. On the flipside GME is selling a ton of DLC in store at launch, you can look that up yourself.
Now I will do your homework for you on your bogus EA claim.
EA Q4 2013 Slide Presentation
Non-GAAP net rev FY 2013: $3,793 = Digital 1,663 Retail 2,130
Now EA breaks digital down= $214 in full game downloads a -3% decrease from 2012. Full game downloads includes PC games. Which EA has Orgins, its own platform, to download games which is a far, far, far 2nd to steam in market share. They also say on page 4 Sim City did 1.4m units w/ half downloaded from Orgins so we are talking $42 m. A very generous estimate would put console full game downloads at $80m. I would put it in the $20-30m range.
So $30m digital console downloads vs $2,130 at retail. Thats 1.4%. Well off set by GME selling DLC with the disc.