GameStop Facing Challenges and Opportunities to Reach $34
GameStop (NASDAQ:GME), a leading multichannel retailer of video game products and PC entertainment software, has had a volatile year. Its stock price went on a roller coaster from $20 to $28 back to the lows for the year and finally returning to $26 this fall. This cycle is typical of the boom and bust video game industry. The release of games like Halo or World of Warcraft can make a quarter or year for GameStop. Significant competition from players such as Best Buy (NYSE:BBY) and Wal-Mart (NYSE: WMT) has also affected the company’s performance.
The company recently purchased Kongregate and PC game distribution platform Impulse to increase its online presence. These two platforms currently produce a small percentage of GameStop’s sales, but represent the future of the company. We project that the market share in this division will grow from 1% today to 12% by the end of the Trefis forecast period.
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The Trefis price estimate for GameStop of about $34 is significantly ahead of the current market price. Much of this value is based on the expectation that the company’s digital PC game market share will grow quickly. If the growth deviates it will have a large impact on the stock price. According to Trefis estimates, digital products and retail games account for 40% of the stock price.
Increasingly Difficult Competitive Environment
GameStop has fierce competition on several fronts. Best Buy (NYSE:BBY) and Wal-Mart (NYSE: WMT) are cheap alternatives that service far more overall consumers than GameStop and can attract more casual consumers. Video game devices such as Microsoft‘s (NASDAQ:MSFT) Xbox and Nintendo’s Wii can also now sell their games directly to consumers through their gaming platforms. While digital computer and video game sales are a potential area for growth, they can be undercut by piracy. Overall, GameStop faces an increasingly challenging competitive environment.
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