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GameStop (GME)
GameStop Posts Stong Fourth Quarter
The GameStop Corporation (GME: Charts, News, Offers) announced today that its fourth quarter profit increased 22%. The world's largest video game retailer also reported that its net income grew from last year's $189.8 million to $232.3 million. Although there are some obstacles on the horizon for GameStop, the video game titan still feels confident about its ability to build on its strong fourth quarter performance. GameStop further validated its previous forecast that earnings per share will increase 18% to 22% in 2009. How was GameStop able to produce such impressive fourth quarter results in the midst of this struggling economy? Is the GameStop Corporation really capable of continuing this type of performance throughout 2009?
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The GameStop Corporation credits its impressive fourth quarter performance to strong holiday sales. The video game retailer benefited from the success and popularity of the Nintendo Wii and a well-rounded line up of video game titles for various platforms. The Nintendo Wii was a highly coveted gift item that has managed to sell more than 50 million units worldwide. In addition, GameStop saw strong demand for blockbuster titles such as "Wii Fit", "Guitar Hero", "Call of Duty: World at War", and "World of Warcraft: Wrath of the Lich King." It seems that a solid catalogue of video game titles and strong platform unit sales carried GameStop's overall performance in the fourth quarter. Even though GameStop seems to acknowledge that its fourth quarter performance was largely in part to the time of the year, it still anticipates similar success throughout 2009.
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The main reason for GameStop's optimistic forecast is because the video game industry, to a certain degree, is considered recession "resistant". The industry tends to post strong performance numbers even in harder economic times. In addition, the video game retailer is hoping for high consumer demand for new hardware products releasing in 2009, such as Nintendo's DSi platform. However, the GameStop Corporation does recognize that performance will be slower in the first half of 2009, but thinks it will pick up during the second half of the year as the holiday season approaches. That being said, there are still some potential obstacles that might slow down GameStop's forecasted progress.
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The biggest concern that GameStop faces is the increasing speculation that there will be a lack of major blockbuster titles for 2009. In the previous years, the video game retailer experienced a boost in sales thanks to major studio productions like "Halo 3", "Gears of War", and "Mario Kart". That is not to say that 2009 will not have any highly anticipated studio releases, but rather just not nearly as many as in the past. As a result, there is a possibility that sales may suffer accordingly, but at the same time there may also be a surprise release that jump starts sales unexpectedly. In addition, there is also growing concern about Amazon's (AMZN: Charts, News, Offers) entrance into the used video game market. The used game sector accounted for 49% of GameStop's gross profit for the first ten months of 2008. However, the Amazon used game offering is a "mail-in" service, which may hinder its growth and popularity with consumers. GameStop also needs to be aware that the video game industry is believed to be recession "resistant" not immune. In this current economic climate, the video game industry may perform better than other industries, but there is no guarantee that it will do as well as it did in previous years.
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Overall, it appears that the GameStop Corporation is positioned quite nicely, considering the circumstances. However, GameStop will need to be very cautious as it moves through the rest of the 2009 calendar. The video game retailer may not have any control over which titles are released this year, but it does have the power to defend its used game market from Amazon. It is hard to tell if Amazon is just another fleeting threat or a legitimate contender, but regardless GameStop needs to keep a close eye on its used game title belt. Only time will tell if GameStop will be able to meet its optimistic 2009 forecasts.
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