Matthew Waterman
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Matthew Waterman in Brand Power,

GameStop Is Not As Doomed As You Believe It Is

Ok, I admit it, I totally believed that digital game delivery was going to kill the future of GameStop (GME). I suppose the thinking is similar to what happened with bookstores and Amazon (AMZN), in how digital books put the Borders chain out of business. But then I actually went to one of their locations, and I realized that thinking was completely off-base.  

The situation is less like Amazon vs. Borders, and closer to Amazon vs. Walmart (WMT). On that front, Amazon has not decidedly won. While software is still the bulk of their operation, there are still a lot of users who prefer physical media over downloading games. Although internet speeds are constantly increasing, new games for the Sony (SNE) Playstation 4 and Microsoft (MSFT) Xbox One are enormous files, and even on fast connections will take all day to arrive. If you want to have a gamer party, you want those games right now, and that means brick & mortar is where you're headed. Additionally, a 500GB hard drive fills up very fast when games are around 45GB each. I had mine maxed out inside of the first month I owned it. 

That said, we have been too focused on the "game" part of the equation. They still make money selling consoles, controllers, and accessories. Digital delivery can't replace those things. And, like Barnes & Noble (BKS) has done, the merchandise line has expanded to carry lots of anime toys and figures from the games. That makes a lot of sense for B&N, since they have a large selection of manga there, they can cross-sell anime and manga toys. Likewise, Gamestop is doing much the same.

Even if you doubt all of the points I'm making here, there's something you need to take a look at: Their accounting statements. Gamestop is not exactly suffering right now. The company had increasing revenues and net income in 3 of the last 3 years. Whatever you think the future holds for them, it is clearly not harming them today. 

All of this taken together with the fact that the stock is trading for just over 8 times earnings and is paying a juicy 5% dividend yield makes GameStop a solid, value-based investment in my book. I think these guys are survivors. I rate this company a buy.