Analysts: You Gotta Love Them Edition: Part Deux


Where do these guys come from? This morning a new doom and gloom analyst report came out from Goldman Sachs about the game business. Apparently, for the first time in the history of the business, software sales will peak mid cycle. Thank you for the clarification Mr. Higginbotham. Don't listen to me though, this is what he says:

Goldman Sachs analyst Robert Higginbotham has stated that video game sales may have peaked this year. And as one of the biggest beneficiaries of the video game boom, leading retailer GameStop may be negatively affected by a slow down, he said.

"We see GameStop shares as poised for a pullback as industry growth remains on a path toward deceleration from its current peak," Higginbotham wrote, according to MarketWatch.

Assuming his analysis is correct on the software side, which I will address below, apparently, Mr. Higginbotham does not believe Gamestop will enjoy any benefits from the inevitable price decrease in consoles. As I wrote in the last analyst post, these guys assume a static console base. In the real world, console sales increase exponentially each year. They increase even more when the prices fall, which they are likely to do this holiday season. New console buyers want to feed software to their machines. This means average unit sales and unit sales of hit titles increase. Don't forget Gamestop has a margin on those consoles as well.

He continues:

GameStop shares have risen 30 percent in the last month, but fell 2.5 percent in midday trading to $55.21. Although the next couple months are poised for further growth thanks to huge releases like GTA IV and Wii Fit, Higginbotham is concerned about the back half of the year. "...the remainder of the year lacks any big releases, and comparisons get tougher throughout the year as we lap titles such as Halo 3 and Guitar Hero III," he noted.

Before I talk about titles in the pipeline, Mr. Higginbotham should recognize the strength of GTA. GTA will open big, but it will have a long and robust tail. The game is one of the few games which will hold full retail price for a year. It will be one of the top sellers of the holiday season, even though it is released in Q2. As far as a dearth of strong titles, I wish this were the case. I sit in meetings with publishers trying to avoid the release of mega titles against our launches. I don't know about stock prices, P/E ratios or neat analytics, but I do know a sure thing when I see it. Especially this close to release. This holiday season, like all others, will be a blood bath for publishers at retail and a gift to consumers and software retailers. Let's take a look at the titles announced so far:

Titles you would mortgage your mother's house to have a piece of (all multi million sellers):

Gears of War 2
Fallout 3
Midnight Club Los Angeles
Madden Football '09
Soul Caliber IV
Star Wars: The Force Unleashed
Brothers in Arms Hell's Highway
SOCOM: Confrontation
Spore
Metal Gear Solid 4

Titles you would borrow on margin to have a piece of (all million plus sellers):

Too Human
Saints Row 2
Just Cause 2
Far Cry 2
Mercenaries 2
Bourne Conspiracy

Titles you would dip into your savings to have a piece of (likely million sellers and great breakout possibilities):

Sonic Unleashed
Little Big Planet
Lego Batman
Borderlands
Afro Samurai
Project Origin
Legendary
Jason: Rise of the Argonauts

Contrary to Mr. Higginbotham's advice, I would not short software sales today, but thank for the tip.





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