Can This Year’s Title Line-up Boost GameStop’s Top-line Growth?

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The American video-game retailer, GameStop (NYSE:GME), has been the victim of the changing trends in the gaming industry, with physical software sales declining over the last couple of years. The 2015 Electronic Entertainment Expo (E3), held in Los Angeles, California, from June 16 to June 18, seems to have brought a respite for the retailer giant. The E3 2015 event had many big names in the industry showcasing their upcoming products. This event might not only impact the software and hardware segment of the company, but might also boost the revenue growth of the pre-owned products segment.

With interest of gamers shifting from physical video game software titles to digital available software and extra downloadable content, GameStop’s revenues from sales of new video game software shrunk more than 18% over the last 3 years, reaching $3.33 billion in 2014. The situation seems to be taking a turn this year, as the software sales seems to have picked up the pace. According to research firm NPD, gamers spent $1.43 billion in the first five months of 2015, merely 1% year-over-year (y-o-y), down from last year’s figure over the same period. Moreover, some of the top game developers, such as Electronic Arts (NASDAQ:EA), Ubisoft, Bethesda, and Activision Blizzard (NASDAQ: ATVI), have some of the most awaited and popular games lined-up for this year’s holiday season. On the other hand, the industry-wide hardware sales are down year-over-year, due to a decrease in demand of the previous generation consoles. [1]

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Our price estimate for the company’s stock is $41, which is roughly 3% below the current market price.

See our complete analysis of GameStop

Return Of Popular Titles To Drive Software Growth

This year’s E3 event witnessed the return of some of the high profile popular games, which included Electronic Arts’ Need For Speed and Activision Blizzard’s Call of Duty: Black Ops III. EA announced its intent to release another edition to the all-time famous racing franchise: Need For Speed, after the absence of its edition last year. (See: Electronic Arts’ highlights at this year’s E3 event) This game will be launched both for the consoles and the mobile devices, on November 3, 2015. On the other hand, Activision’s surprise this year is the sequel of its most highly rated and most played Call of Duty series—Black Ops.

COD

Some of the new titles were also introduced by the companies, including EA’s sports titles (FIFA 16, Madden NFL 16, NHL 16), Activision’s Destiny’s expansion pack and Skylanders SuperChargers; Ubisoft’s Assassin’s Creed Syndicate, and Warner Bros Interactive’s Batman Arkham Knight. [2]

Unlike last year, the gamers have purchased their new console systems and are probably looking for new games to try out, as they head towards the second half of the year. With such big names on the upcoming release list, core gamers may rush up to stores to get their hand on these titles first. GameStop will be coming out with some new and exciting offers on these new titles. Not only will it provide a boost to the company’s physical software sales, but might drive the company’s digital revenue too.

Respite For Hardware Segment

According to NPD research group, hardware sales figure for the first five months of 2015 was down 11% year-over-year compared to the first five months of 2014. The decrease in demand of previous generation consoles led to the sluggish growth in hardware sales.

Microsoft and Sony showcased new development in their respective new generation console systems at the E3 2015 event. Microsoft announced backwards compatibility for its Xbox One console systems and a new elite wireless controller. [3] Moreover, with new games ready to come this fall, those gamers, who have not yet tried new console systems might opt for buying those console platforms. In short, it will translate into better hardware sales in the coming few quarters.

It will be interesting to watch how the upcoming quarters turn out for GameStop. Will it be similar to last year, where software sales lagged the hardware sales, or will it be a 180 degree turnaround?

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Notes:
  1. May NPD games sales []
  2. Games at E3 2015 []
  3. Microsoft at E3 2015 []