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Author: TMFGebinr Big gold star, 5000 posts Old School Fool Supernova Phoenix 1
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Subject: GME - Q2 2012 Date: 8/23/2012 4:31 PM
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Hi everyone,

Release: http://phx.corporate-ir.net/phoenix.zhtml?c=130125&p=iro...
Transcript: http://seekingalpha.com/article/812571-gamestop-management-d...

Interesting article with a strong bear case and a strong bull case rebuttal in the comments: http://www.gurufocus.com/news/187597/gamestop-same-store-sal...

An article showing how GameStop is maneuvering as the landscape changes, including its move to becoming the used store for smartphones and tablets: http://www.businessweek.com/articles/2012-08-09/gamestop-wit...

An article that looks at this from a slightly different angle: http://tech.fortune.cnn.com/2012/08/03/gamestop/?utm_source=...

Speculation by Barrons (and reported by flyonthewall) that GameStop could make a good acquisition at $25 per share: http://finance.yahoo.com/news/gamestop-could-fetch-25-more-0...

The question is has this company become a value trap? 7x PE, less than 6x EV/FCF, 5.3% dividend yield, repurchasing a ton of shares. Sounds good, especially that dividend. Could someone come in and buy it for the cash flow? One of the above articles said that GME should raise its dividend to make itself a more tempting target. And it did raise its dividend ... by 67%.

Current price is as if the company will see 6% decline in FCF forever (at 12% discount rate and using previous period TTM FCF -- the 10-Q won't be out until early September or so). The thing is, if revenue keeps falling as it has (9% drop in SSS, 11% drop in revenue for Q2 YoY), FCF would probably fall faster I would think. There's still a lot of fixed assets costs that have to be serviced thanks to all the stores.

I talked this one over with Matty Argersinger (TMFMattyA), a guy who's followed the gaming industry for quite a while. He said that new consoles, if they come out, probably won't be until 2014 or 2015, not next year. The WiiU is next and expectations are really low for that. The Xbox 360 might upgrade soon, but nothing's been heard about Playstation form Sony. Plus, there's the digital side.

Best Buy never really got into digital selling and Amazon ate it alive. Blockbuster got into digital renting, but late and halfheartedly and Netflix ate it alive. Is the digital wave overcoming GameStop?

Mists of Pandaria digital version is being pushed hard on Activision's battle.net platform. The pricing is right, too, at either $40 (regular) or $60 (deluxe), compared to a collector's edition at $80 in retail outlets (e.g. GameStop). Diablo III likely sold more digital copies than retail copies as counts from NPD (retail) significantly lagged Activision's reporting of units sold. And these blockbuster games digital sales are coming straight from Activision, I believe.

So, can GameStop reinvent itself? It's moved into digital gaming with Kongregate et al., it's moving into selling refurbished used smartphones and tablets, and it's been doing pretty well with its loyalty program. But are events moving too fast for the company?

Thinking this one over...

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