GameStop: Why Is New Game Software Worth Less Than Its Revenue Contribution?

-8.06%
Downside
12.61
Market
11.59
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GameStop

GameStop‘s (NYSE:GME) new game software segment contributes just over 20% to the company’s value as per our estimates, despite accounting for 30% of its revenues. This is because the new game software business is less profitable than the remainder of the company and its revenues are expected to shrink marginally over the next five years, while we estimate slight growth in the other segments’ revenues. This can be attributed to the fact that physical software sales have been declining due to a changing industry landscape, thanks to the advent of smartphone and tablets, that provide access to a number of games, leading to a rise in casual gaming.

new game software part one

new game software part two

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for GameStop
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