B of A out with a note this morning listing potential acquisition targets as 2014 should see increased M&A activity. On the list in consumer sector: GME.
GME take out would be easy to debt finance given how accommodative credit markets (ultra low rates and few restrictive covenants) are and its stable cash generation history.
they've been shutting underperforming stores for years and the store closings are immaterial (200 net stores closed versus a fleet of 6,488 is only 3%).
They have generated over $450 million in free cash flow each year for the last four years and will generate even more than that in the year ended 1/31/14. Why shouldn't they pay some of it out/buy back stock? Especially when the stock trades at a free cash flow yield 10%? Armageddon may be coming as you and others predict, but when? Broadband has been with us a long time and GME keeps on making good money.
-Less AAA titles doesn't translate into lower sales of those games. Look at GTA V's huge success. The publishers are focusing on developing franchises and sequels because they earn better returns that way versus developing a lot of one-off content. Same is true of the movie business.
- GME sells DLC and other digital content at a high margin...and it still owns game streaming service Spawn, but won't launch it until it's ready for prime-time
- Downloading may be getting better because internet connections are getting faster, but that doesn't mean they are getting cheaper nor does it mean that carriers won't charge bandwidth hogs more for their big appetites. Plus, they can't be re-sold, so downloading is already more expensive for the gamer who wants to trade in when done with the game.
-Consoles aren't dead yet. Yes, tablets and other mobile devices are garnering share but they're not about to displace a dedicated gaming device. Plus, as tablet/mobile category grows, GME participates via its buy/sell/trade model. The mobile business at GME posted $50 million of sales in Q3 and keeps on growing.
-GME's used business getting hammered? it was down 2% in Q3 and is UP 7% in Q4 in the midst of a new console launch, that's extraordinary. Management said on the Q3 call that they expect to see used accelerate as the console launch ages. And hey, if there are less exciting new games out there as you suggest, maybe gamers give some older, less well-known games a second look on the used rack.
it would be interesting if he pushes for a levered recap as he did with Dell. A tender offer for 50% of the float would cause serious technical problems for the shorts.
*NPD said that if you adjust for the fact that January '13 was a five week observation period versus a four week observation period in 2014, software sales were only down 1%. Also note that, according to the GME website, the top 3 "best selling" games for the PS4 haven't even been released and so haven't shown up in the retail numbers yet. Bottom line: the content isn't available yet for the consumer to buy, but he's pre-ordering it like crazy. Of the top 10 best-sellers for PS4, 7 haven't been released yet!
*Developers cutting back? From the TTWO Q4 13 conference call: "we have a robust development pipeline...including more than 10 unique titles for the next generation consoles." from the ATVI Q4 13 call " we are currently deep in development with the richest slate of new IP in the company's history."
* Comparing prices for "Lego: the Movie" game at GME and eShop. Prices same at GME/eShop for both 3DS and WiiU
* Apple TV rumors...how does that relate to video game retailers exactly? I thought Steam and Amazon were the ones putting GME out of business. Now Apple, too?
I think you can take a position in a stock and write a buy/sell recommendation particularly if we're talking about Zack's, which isn't a broker dealer. But all of this is neither here nor there because no one who has any influence on the market pays much attention to Zacks.
Assuming a $50 per share take-out gets a pro forma valuation of about $5.1 bn netting cash. $900 million of EBITDA levered 2.5x at 6% = $2.25 bn of debt and annual interest expense of about $135 mm. That leaves about $2.85 bn of Pro forma equity behind the debt receiving annual free cash flow of about $400 million for 14% FCF yield to the equity. This business has been stable for years, even in a world of high speed internet connections. If it remains so (and it should given we are at the start of a long console cycle), that's a nice potential return for a private equity firm.
Both W. Va Senators are Democrats as is the Governor. Who's spreading the lies? or are you just ignorant of facts? I'll guess both. Go worship your false idol Obama and stop spreading misinformation.
the Left doesn't lie? the Left is nothing but one big lie. It promises something for nothing and resorts to name calling "racist" anyone questioning its views. Leftism (ie, communism, socialism) is nothing but an empty, hollowed out ideology with a #$%$ track record (USSR, Cuba, Venezuela); it protects the masses by placing them in shackles and never results in nothing but equal misery for everyone in the name of addressing economic inequality among some. But so many on the Left continue to believe the lie...they worship at the altar of Obama and ignore facts and reason (as any cult requires).
yes, let the people freeze. everyone knows that good people like the liberals don't use fossil fuels. they don't fly, drive, cook...all they do is congratulate themselves about how good they are to each other and the environment.