GameStop is a corporation that specializes in PC entertainment and electronic game software stores. The corporation is based out of Grapevine, Texas, and operates in about 14 different countries worldwide. Astonishingly 65% of their sales comes from the United States and about 15% comes from European countries. While these sales are broken down into categories 55% is from new and used video games, 25% is from new game hardware and accessories and conclusively technology brands such as spring mobile and simply mac make up the last 10%. The company plans to expand its growth in the technology brand stores and decrease the number of game stores. This strategy is to try t be more diverse as a decline in the need for games increase as the newest consoles allow you to be able to download games. Although, they are not giving up easily on game stores. They are working on strategies that would help them deliver games digitally to people.
When you look at GameStop you see that they have three main competitors in the retail markets. Best buy, Target, and Walmart all being major retail stores that not only sale game consoles, new and used games, but also strike into the technology brands such as phone and tablets.These stores are now doing buyback programs for used games, and some offering in store credit towards new games. It puts a constraint on the used video game segment of operations which is one of the most profitable products for GameStop at 25.7% of sales. To fight against this GameStop has recently announced a subscription called Power-Pass that allows customers to borrow physical game copies for nearly half a year for an annual fee currently none of the competitors offer this. While,Walmart and Target generate the majority of their sales from a grocery and home items BestBuy, is the biggest competitor that they have in the electronic segment.
The most growth potential segment that GameStop has is the simple mac division that specializes in all apple products and services. Which, two out of the three competitors cannot offer currenBestBuy, is the only other peer that has all apple accessories including mac-books, phones, and tablets that also offers services to fix them like geek squad. BestBuy still holds the upper hand in this division currently due to the majority of their sales profit off of electronics at 30.9%. Game stops technology brands only offer around 5.6% and about 33% in electronics of the profits which gives them plenty of room for improvement. With, the fierce competition these gigantic corporations present on the market GameStop’s only option for survival is to become more diverse in other segments of the company.
While looking over the income statement we see that from years 2012 to present we have seen an almost steady positive growth of gross profit. The revenues and operating expenses seemed to fluctuate from year to year. Earnings per share also seem to stay constant from these years as well.
The biggest thing that we see from GameStop’s cashflows statement in recent years is that they have a lot of money in investing cashflows. This is due from recent acquisitions of technology brand segments. This purchased happen in 2013 leading to high outflows of the years following
GameStop has been one of the leaders of the video game industry since its open In 1994, however they have had some major factors from an economic standpoint that has both helped and hindered the company. Some information from the 10-k report tells us that they have many risk factors that could potentially eradicate the company. One main reason is that the industry has been known to be historically cyclical in the nature of the next generation of game technology. For instance if no new games are being produced or no new game consoles then the company is doomed for failure and would assumedly have to shut up shop forever, because they would not have much product to sell. The good news for game stop this upcoming fiscal year will be the E3 which will be the announcement of three major games to be sold in the upcoming year.
This is not the end to the worries, because even with this announcement game stop could still fail due to being heavily reliant on vendors timely deliver and great relations. If the company does not have a great relation with its vendors then they will be at a huge competitive disadvantage by not being the first to offer the new technology and games. Which in the ever evolving and growing industry could completely destroy them. Showing roughly that the 64% of new product purchases come from (sony, activision blizzaard, Nintendo, and Microsoft). The closing of stores is a huge help for game stop giving them the opportunity to downsize the company and increase profits at other stores. This also gives them the ability to open up more stores in the technology brands to help them become diverse. From the years 2013 -2017 we saw a vast decrease in domestic stores compared to foreign stores in Canada, Australia, and Europe at around 100 stores a year.
Stores usually close if they are underperforming, meaning not making at least 75,000 dollars in profits a year. After a huge purchase of AT&T affiliate stores and simply mac not growing as fast as the way they wanted to it seems that the company needs a better way to stand out in these markets. However, this segment only holds about 10% of the companies profits they still have plenty of time to see some growth. Which ties us back in to the closing game stores and reopening technology brand stores. with only 1329 stores gamestop needs to continue the growth and maintain great relations with apple and at&t to increase the diversification Game stops credit was rated a BBB- and positive outlook by fitch rating agency. This is a fairly rated credit score and any downgrades could hinder the company.
Game stop has been buying back shares and retiring them which in turn will provide a higher EPS over time provided that net income remains constant or increases. Higher eps will translate to higher plowback ratio. And a higher plowback ratio translates into higher calculated dividend growth rate. This can provide a more favorable dividend growth model in terms of GameStop. While also closing many stores is making some big headlines in the press. This is a strategy to become bought out. Which will increase their share price of GameStop over time. There have been talks of investors interested but nothing set in stone just yet. Gamestop is in no legal proceedings that could affect their financial standings in the US. In France they are in a battle with the FTA over a tax reassessment that if it does not remedy with administrative procedures then judicial procedures will take place.
