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Lunabean vs. Pachter - Pachter wins

Filed under: Video Game Business
Posted by Jeremy on May 23, 2007 7:04 AM
Comments (0) |

The other day, I made a prediction that GameStop, who reported earnings this morning, would do better than what Michael Pachter, video game analyst at Wedbush, predicted.


Well, it looks like round one goes to Michael Pacther. He and his fellow analysts had a consensus estimate of $0.16 to $0.17 per share. I predicted earnings of $0.20 to $0.22 per share. GameStop today reported earnings of $0.18 per share, excluding a $0.03 debt-retirement charge.

What does this all mean? GameStop's profit doubled year on year and their earnings came in just above analyst estimates, meaning they're right on track. The stock price is down about 3% right now, however, once everything shakes out and people realize that GameSpot's guidance for the rest of the year remains strong, the stock will rebound.

GameStop said sales of products like Guitar Hero II, the DS, and the Wii are bringing in new customers and expanding the market.

Gamestop boosted its profit forecast for the year by 2 cents to as much as $1.42 a share. The company reiterated its forecast for sales to rise as much as 21 percent, with sales at stores open at least a year rising as much as 16 percent.

In other words, `"You have a near monopoly in a segment that's growing,'" said Robert Blews, research analyst with Cherry Hill, New Jersey-based Penn Capital Management, which overseas $5 billion, including GameStop shares. (source)

Why was I wrong?

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Why was I wrong with my estimate? Well, I simply thought that sales would be even better than they were. I thought that the two week window of Pokemon Diamond and Pearl would have more of an impact on sales and I also thought that Guitar Hero II would have more of an impact.

What you do have to look out for when analyzing GameStop is that the store is still considered a place for hardcore gamers. The average mom or grandma is going to be buying their Brain Age and DS at the local Best Buy, Circuit City, or Sears; not at GameStop.

What GameStop really needs to focus on is getting those new customers to come into their stores by softening their image and offering even more incentives for trading in used games.

I'll continue to watch GameStop and offer my opinion. Just make sure you don't make any stock buying decisions based on it ;).

Bloomberg






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