This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Are GameStop Shares Sinking?

Bank of America Merrill Lynch analyst Curtis Nagle gave equal confidence to GameStop's used-gaming business even as Walmart bears down.

"While we view this as another multiple headwind to GME, ultimately, we do not think that it bears a meaningful risk to their used-gaming business (27% of sales, 44% of GP), as it is a very difficult business to scale and manage," Nagle writes in a note. "We note that, in 2011, BBY entered the used-gaming business and was largely unsuccessful. GME management has stated that BBY's entry had no impact to their business and we believe the same will be true with WMT." Nagle rates GameStop at "neutral."

"GME is the number one player in used gaming, with a 70% share. Over the past 20 years, GME has built a set of key competencies and capabilities that will continue to make it a very tough competitor for new entrants, including WMT," BofA's Nagle adds. "First and foremost, GME is the destination for gamers, particularly hardcore gamers that have a higher propensity to trade-in games. In fact, 90% of GME's used sales are attributable to its 26mn PowerUp Rewards members and we believe GME will continue to leverage its powerful direct marketing program to bolster its used business. GME also has a far larger selection of used games (WMT will initially not offer any used games), which is a critical component establishing legitimacy among used gamers."

"Ultimately, we think the most important advantage for GME is that they have full control of their supply chain, as well as a world-class refurbishment center and an algorithmic pricing system with 20 years of data," the BofA analyst goes on to say. "This has allowed them to manage pricing and inventory efficiency as effectively as possible, and GME has never taken a writedown on used gaming inventory. With WMT lacking these key assets, we believe it will be very difficult for them to successfully scale and manage a used-gaming business."

Must Read: How Elon Musk Is Like Steve Jobs

GameStop reports fourth-quarter earnings on March 27.

--Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
GME $43.88 -0.24%
WMT $66.84 -0.06%
AAPL $111.74 2.00%
FB $93.45 1.10%
GOOG $644.58 0.85%


Chart of I:DJI
DOW 17,094.14 +43.39 0.25%
S&P 500 2,013.43 +15.91 0.80%
NASDAQ 4,820.9950 +10.2070 0.21%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs