Just read a news release where GME is upgraded to a strong buy. Share price is expected to reach $67 a share. They said the share price should increase as "they gain market share". What do they mean by gaining market share? I've seen this phrase used before. I haven't seen any reference to this in any book I've read on stock analysis, and I don't think I've seen this phrase used in any Fool article. Please enlighten me, is it just a catch-phrase to sound intelligent or what?
Greetings,Warning: This explanation tries to be as basic as possible just to provide help and isn't meant to reflect on anyone's intelligence or vocabulary skills.Well, let's break down that phrase "gain market share" into its parts for a moment:Gain - Increase, rise, make bigger. Like you have gained height and weight since you were born, and knowledge as well.Market - Place to buy and sell products and services. Generally when people talk about market they mean something more specific as in either a particular store or type of product and service. As a few examples there are stock markets like the NYSE and NASDAQ, car markets where people can buy Ford and GM vehicles, microprocessor markets where Intel and AMD compete, graphics card markets where AMD and nVidia compete, Dell and HP both compete in the market for selling computers, Coke and Pepsi in the soft drink market, etc.Share - How much ownership of something one has. Like a share in a company is part ownership of that company. Like a group of robbers divide up the spoils so that each party gets their share. Like what % of all computer sales are Dell? Or what % of all soft drink sales does Coke account for?So, putting the 3 together we get something like, "Make bigger, the buying and selling of products of services that the company is in" sort of which hopefully makes sense.To give an example of recent history on this, you could look at how AMD has been "gaining market share" of the CPU market as the percentage of computers sold now have more AMD processors than before. Intel used to be a monopoly but over time AMD has gotten up to about 25% of the market, that is their share.Market share is a fundamental of a company that isn't likely to be found in stock analysis since it is potentially questionable since other factors have to be taken into account as some companies may lower prices to gain more market share so that while they may sell a lot of something, at lower prices means lower profits so it may not be that great. Similarly, when some companies lose market share this may mean they aren't as dominant as they once were like Dell these days for another example. Does that help or not?Regards,JB
I'm a marketing exec, so let me take a simple stab at answering the question.Markets are simply where buyers/customers and sellers/suppliers come together. Markets exists for apples, computer chips, and potato chips: anything that is bought and sold. Suppliers to the "Market" compete for a % of customer orders. This % is called "market share."If a company is "gaining market share" they are increasing their % ownership of the market.******* END OF THE SHORT ANSWER TO YOUR QUESTION ********EXTRA CREDIT: When Gaining Market Share is Bad------------Please BE CAREFUL when evaluating "gains in market share." I mean, that sure sounds like a good thing, right? My company is having an increase in orders of widgets! Customers want more, we make more, we SELL more! Surely, that's a GOOD thing, right?Maybe not. I have a sure-fire way to make customers BUY MORE. Cut the price. Think about your last trip to the grocery. You see Coke is on sale. Coke was not on your grocery list; you have plenty of Coke at home. But, dang! 3 twelve-packs for $5?! So you buy Coke.Two bad things about this scenario for the supplier (e.g., Coke). First, they cut their price. This is not always a bad thing. IF the volume increases sufficiently, Coke makes out great in the deal. On the other hand, if the volume lags projections, the company loses money on the price cut. THEY GAIN MARKET SHARE, BUT LOSE OUT ON THE DEAL. Think about that a while.Second, price cuts can lead to customers doing something called a "forward buy." In our grocery store example, you did this when you bought Coke that you did not need. You would now have next month's Coke purchase sitting in your pantry at home. Now, you will not buy Coke next month! THEY GAIN MARKET SHARE now, BUT LOSE FUTURE SALES.Anyway, there are folks (myself included) who make entire careers out of this stuff. Marketing is not about sipping martinis at a 2-hr lunch. Marketing is a quantitative business discipline. And, for those companies where it is not? Those are not businesses worth having in your portfolio.I hope all this helps! Good luck!!All the best,Boz
Gains in market share are LESS IMPORTANT than.......gains in profits.
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