One of the sell side brokers came out today reiterating their view on disintermediation and that the next console cycle would be negative for GameStop (i.e why buy a physical game at a shop, when you can download a game) with more games being downloaded than bought in store. They claim this would impact the second hand and trade in side of the business. This analyst has a $1.60 price target on the stock. However, they acknowledge that the gross profits may gain by up to 5.5% due to the Microsoft deal – this would be $80mn. That is much lower than some other estimates of the deal.
We have no change of view. This has been discussed for years for GameStop and is not a new factor. A lot of consumers will mix online and physical – there are a lot of advantages to physical games which we covered in our recent posts.
There are some astute commentators, such as Gavin Baker, one of the top performing Fidelity fund managers for many years (who has just set up a new hedge fund) talking about how omni-channel will fight back. There is more to retail than pure online. We agree. https://medium.com/@gavin_baker/why-category-leading-brick-and-mortar-retailers-are-likely-the-biggest-long-term-covid-d70b8dfadc20
Do not write off the store and what GameStop can do with its real estate. Can BestBuy, Target and WalMart going to create this type of in-store experience? https://chainstoreage.com/store-spaces/gamestop-partners-to-develop-new-store-concepts-and-in-store-experiences
GameStop was short term overbought, we discussed such in our first post. For traders, that has now been addressed. The stock is now short terms oversold.
Shhh…don’t wake the bear.
Lot’s more to follow….
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