GameStop - UNIVERSITY OF OREGON INVESTMENT GROUP April 5th...

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U NIVERSITY OF O REGON I NVESTMENT G ROUP Covering Analyst: Ari Siegel Email: [email protected] The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be. Members of UOI G may have clerked, interned or held various employment positions with firms held in UOIG’s portfolio. In addition, members of UOIG may attempt to obtain employment positions with firms held in UOIG’s portfolio. April 5 th , 2010 Consumer Goods GameStop Corporation BUY B USINESS O VERVIEW GameStop Corp. (GME) is the world’s largest retailer of video game products a nd PC software. Beginning operations in 1996, GameStop was acquired by Barnes & Noble in 1999 before a 2002 initial public offering. Since that time, GameStop has expanded exponentially. The company now operates 6,450 stores in the United States, Canada, Australia and Europe. In addition to retail locations, GameStop also sells its products through its website, Stock Data Price (52 weeks) 17.12 32.82 Symbol/Exchange GME / NYSE Beta 1.08 Shares Outstanding 167 Mil Average daily volume (3 month average) 6,166,400 Current market cap 3,740 Mil Current Price Dividend Dividend Yield $22.40 $0.00 0% Valuation (per share) DCF Analysis $29.79 Comparables Analysis Target Price Current Price $31.37 $30.58 $22.40 Summary Financials Revenue 9,077 M 2010A Operating Cash Flow 564 M 2010A Net Income 374 M 2109A
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G a m e S t o p C o r p o r a t i o n u n i v e r s i t y o f o r e g o n i n v e s t m e n t g r o u p 2 h t t p : / / u o i g . u o r e g o n . e d u 19.35% 41.10% 26.37% 13.18% Operating Segments New Video Game Hardware New Video Game Software Used Video Game Products Other Revenue GameStop.com. GameStop ’s revenues are broken down into four operating segments in their financial statements. These four segments are New Video Game Hardware, New Video Game Software, Used Video Game Products and Other Revenue. New Video Game Hardware typically includes sales of gaming consoles such as the X-Box 360, Nintendo Wii, PlayStation 3 and hand held gaming devices. This segment currently has the lowest gross margin of GMEs four operating segments, at 6.5%, due to continuous price cuts to aging console technology. Despite Hardware’ s lack of profitability, GME continues to sell gaming consoles because of their indirect benefits to the company. Customers who have purchased gaming consoles from GameStop tend to come back and purchase items from other more profitable operating segments. In fiscal 2009, New Video Game Hardware comprised 19.35% of GME’s total sales. New Video Game Software sales comprise the largest sec tion of GameStop’ s total sales, at 41.1% of revenue. This segment consists of sales of video games for the consoles listed above, as well as sales of video games for personal computers. Examples of current in-store titles include blockbuster hits such as Modern Warfare 2, World of Warcraft and the Grand Theft Auto series. New Video Game Software sales have a much higher gross margin than Hardware, at 21.3% of sales.
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