McIntire Investment Institute At the University of Virginia GameStop - Long (NYSE:GME)

Transcription

1 McIntire Investment Institute At the University of Virginia GameStop - Long (NYSE:GME) 1 Prepared by Connor W. Davis 1 October 2012 There are two of us^

2 Agenda Business Overview Stock Chart Thesis Points Market Misperceptions VAR Risks Recommendation 2

3 Business Overview Selling New/Used Games Secondhand Electronics (iphones, tablets, etc.) Online Content (Game Websites-Kongregate, etc.) Console Sales (Important for Next Year) New Acquisitions Downloadable Games, New Markets 3

4 Stock Chart Share Price: $ Week Range: $ Market Cap: 2.88B Beta: 0.98 EPS: 2.35 Long-Term Debt: 0 P/E (ttm): 9.93 Cash, Stock Repurchases, Dividends 4are important

5 Thesis Points Changing Business Strategies GameStop has branched out into new markets New Trial Stores, Expansions New iphone, Console, game launches High profit margin on resales Acquisitions and new holdings Impulse, Spawn, Kongregate, etc. 5

6 Thesis 1: Changing Business Strategies Video Game Resale profitable, but need more Managers recognized this, branched out Phone, tablet, console resale Online game downloads 6

7 Thesis 1: Changing Business Strategies Refurbishment of used electronics Resale at much higher prices BuyMyTronics Opened up new trial store, selling only refurbished electronics, plans to expand with more locations 7

8 Thesis 1: Changing Business Strategies Changes have brought: Higher profit margins Chances for more acquisitions RadioShack? 8

9 Thesis 2: New Releases 9

10 Thesis 2: New Releases Many people thought these would be completely online consoles Announced that they still require physical games Obviously good for GameStop, as used game sales make a large portion of their profits 10

11 Thesis 2: New Releases Popular Game Sequels Being released Video Game Manufacturers planning to use hardware of new consoles for new games 11

12 Thesis 2: New Releases Historically, the 52 weeks after new console releases have brought GameStop a 20% increase in software and hardware sales Coupled with releases of new Androids, the iphone 5, tablets, and other electronics, profit margins will continue to rise 12

13 Thesis 3: Acquisitions Online Gaming Site -Sell currency Digital Distribution GameInformer Magazine 13

14 Thesis 3: Acquisitions Kongregate online website for video games just like Xbox, have currency that they sell, advertising, People submit games, so doesn t cost GameStop much to run Self sufficient SpawnLabs, Impulse provide directly downloadable content, as well as a platform for downloading GameInformer Magazine 14

15 Thesis 3: Acquisitions GameStop s acquisitions have helped broaden their market penetration, increase revenues and profits, and protect against any decline in physical game sales. Rumors of potentially acquiring RadioShack to expand more into the electronics resale industry 15

16 Misperceptions Fated to fail Going Blockbuster Actually, revenues and gross profits have increased each of the last 5 years Simultaneously, debt has gone down to 0 Introduce share buyback, dividend of over 4% Forward P/E of

17 Misperceptions Everything will be online Still need access through consoles, etc. Games have too large file size (and are growing) to download it would take hours 17

18 VAR Previous Gamestop Store Owner: Margins are obscene we would buy for 10, sell for 25, buy for 2, sell for 6 This is important because new consoles will still allow for used game sales Analyst at Keefe Bruyette & Woods: Good buy low p/e, debt free, increasing sales. Continue to watch for new gaming consoles.. Next year 18

19 Risks/Signs We Could Be Wrong Less than anticipated sales for new consoles, tablets, etc. New stores have less profits and they can t expand They make an acquisition that turns out poorly Download speeds increase at a high rate, downloadable games become feasible 19

20 Recommendation Initiate a purchase at 3.5% Looks to be solid for the next 2-3 years, but should exit after that because of lack of long-term knowledge 20

21 Full Disclosure I do not currently own any shares of GME, but I may initiate a long position within the next 72 hours. 21

22 Questions? 22