AT&T has changed their compensation plans for selling mobile phones and DirecTV. This caused sellers to take some unexpected losses. A 30% decline in revenue from AT&T sales caused Gamestop to disappoint on earnings. Investors should get over it.
NEW BULLISH Plays
GME - Gamestop - Company Profile
GameStop Corp. operates as an omnichannel video game retailer. It sells new and pre-owned video game hardware; video game software; pre-owned and value video game products; video game accessories, such as controllers, gaming headsets, virtual reality products, memory cards, and other add-ons; and digital products, including downloadable content, network points cards, prepaid digital and subscription cards, and digitally downloadable software. The company also sells mobile and consumer electronics, including wireless products and services, and accessories, as well as new and pre-owned smart phones; personal computer (PC) entertainment software in various genres, including sports, action, strategy, adventure/role playing, and simulation; and strategy guides, magazines, and interactive game figures. In addition, it offers collectibles that include licensed merchandise related to the video game, television, and movie industries, as well as pop culture themes; and operates electronic commerce Websites under the GameStop, EB Games, Micromania, and ThinkGeek brand names. Further, the company operates kongregate.com, a browser-based game site; Game Informer magazine, a print and digital video game publication; iOS and Android mobile applications; Simply Mac, a certified Apple consumer electronic products reseller, as well as offers certified training, warranty, and repair services; and Spring Mobile, an authorized AT&T reseller operating AT&T branded wireless retail stores, as well as pre-paid wireless stores under the Cricket Wireless name that offers prepaid services, wireless devices, and accessories. As of January 28, 2017, it operated approximately 7,535 stores in the United States, Australia, Canada, and Europe. GameStop Corp. primarily offers its products through stores under the GameStop, EB Games, and Micromania names. The company was formerly known as GSC Holdings Corp. GameStop Corp. was founded in 1994 and is based in Grapevine, Texas. Company description from FinViz.com.
Expected earnings March 5th.
When Gamestop reported Q4 earnings, sames store sales rose 11.8%, hardware sales rose 39.4% and software sales rose 7.3%. The only gaming hit was an 8.1% decline in sales of preowned software. That was due to a surplus new games hitting the market in the quarter making older titles less desirable.
However, the killer was a 20% decline in revenue from AT&T for selling their mobile phones and DirecTV service. It was not that they sold dramatically fewer units but AT&T slashed their compensation to retailers. For instance if the company got $50 in Q3 for selling a phone and only got $40 in Q4 for selling the same phone, the revenue shortfall is not the fault of the seller but the manufacturer.
Gamestop is currently selling for a ridiculous PE of 5.5 with an 8.7% dividend. Game sales are doing fine and they have 7,500 stores. This looks like a buying opportunity. If the market was to roll over, GME would be seen as a safe value play.
Buy GME shares, currently $17.15, initial stop loss $16.25.
Alternate position: Buy April $18 call, currently 86 cents. No stop loss.
NEW BEARISH Plays
No New Bearish Plays