GameStop Coverage Launch: $38 Trefis Price Estimate
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GameStop (NYSE:GME) is the world’s largest multichannel retailer of video game products and PC entertainment software. The company sells new and used video game hardware, video game software and accessories in addition to PC entertainment software and other merchandise. It operates 6,670 stores in the U.S., Australia, Canada and Europe, primarily under the names GameStop, EB Games and Micromania. GameStop also operates through its e-commerce site www.gamestop.com and online gaming site www.kongregate.com. GameStop competes with retail giants like Wal-Mart (NYSE:WMT), Best Buy (NYSE:BBY), Target (NYSE:TGT) as well as Internet retailers such as Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY).
We recently launched coverage on GameStop with a $38 price estimate, which is roughly a 40% premium over its current market price.
Coverage Launch for GameStop: $38 Price Estimate
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We have broken down our analysis of GameStop into 4 divisions:
- Digital Products, Retail PC Games & Accessories
- Used Video Game Products
- New Video Game Software
- New Video Game Hardware
Digital Products, Retail PC Games & Accessories
The digital products, retail PC games & accessories is the largest contributor to the GameStop stock value primarily due to surging digital sales. Digital products include downloadable content (DLC) for video games, digitally downloadable PC games as well as digital currency for console gaming networks and browser based gaming. It also includes the digital edition of Game Informer magazine, online gaming through Kongregate and online gaming for Android users on Kongregate Arcade.
The company registered 62% growth in 2010 and 53% in Q1 of 2011 in its digital revenues. We expect GameStop to show double digit growth in its digital receipts going forward.
Used Video Game Products
Used video game products is the next largest contributor to the GameStop stock value. The company offers used video game console, software and accessories under this division. The gross profit margin for used video game products in 2010 was 46% which was the highest among all divisions. However the changing gaming landscape from retail to digital is posing a threat to this business in the future.