GameStop Under Pressure

 | Jan 09, 2014 | 10:00 AM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

sne

,

gme

,

msft

,

nflx

Sony (SNE) dropped a bombshell on Tuesday at the Consumer Electronics Show. The company announced its new streaming service, PlayStation Now. The service will provide instant access to classic games for the PS1, PS2 and PS3 over the Internet. In addition, gamers will be able to play across devices such as televisions and tablets.

The new service will work with Sony's new gaming console, the PS4. By allowing gamers to have backwards compatibility, Sony can differentiate its gaming platform from Microsoft's (MSFT) Xbox 360, which does not allow backwards compatibility.

The announcement sent GameStop (GME) investors running for cover. Investors have always been concerned the new gaming platforms would have the ability to stream games over the Internet and cut GameStop out of the picture. (Like Netflix (NFLX) did with Blockbuster.)

PlayStation Now users will be able to subscribe to a catalog of previously released games and play games without having to leave the sofa. Players can also hook up Sony's new Bravia television directly to the Internet and play games on their TV without a separate game console as well.

When the Xbox 360 and the PS4 were announced last year, it seemed there was a d├ętente between the game makers and GameStop. Nobody was willing to bite the hand that feeds it. Now, it seems all bets are off. Microsoft has been quietly working on its own cloud gaming platform. Microsoft's new title Killer Instinct cannot be purchased in a store. It's only streamed through the Xbox 360 with a subscription.

None of this is news to short sellers who have been predicting GameStop's demise for years. As of mid-December, there were 23 million shares sold short and at the current volume it would take about five days for the shorts to cover their positions. This is down from the 12 days-to-cover back in October. It seems short sellers reduced their positions going into the holidays in order to avoid any nasty upside surprises.

Microsoft announced on Monday it had a worldwide sell though of three million Xbox units from its November 22 launch until December 31. Despite the "most epic of Xbox launches ever" hyperbole, the sales figure is in-line with the consensus estimate.

Using its market share, GameStop will probably sell 1.7 to 1.8 million Xbox units in the U.S. and Canada. Those figures should lead to a same-store sales increase between 15% and 20%. Analyst estimates of SSS of 9 to 10% are too low. The consensus estimates of $3.25 for fiscal 2014 and $4.01 for FY2015 are low and will have to be raised. If I'm right, GME should be able to trade as high as $60, despite the Sony announcement. This stock could still have game.

Columnist Conversations

The Fed works for the government. The Federal government owes over $16 trillion. The Fed will likley never rai...
The key to analyzing the Treasury market is to look for the opposite of what makes logical/fundamental sense. ...
Shares of Altria Group are bumping up against last years peak this morning. This area, just above $38.50...
The Census Bureau is altering the way it calculates the number of people with health insurance. This will obsc...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.