GameStop Goes Digital With Jolt Acquisition, But Used Games Still Drive Max Profits

GameStop

Despite a slump in game sales industry-wide, GameStop delivered strong Q3 numbers — performing much better than it did in the previous quarter, and vs. Q308. The company delivered a 31-cent share profit on $1.83 billion in revenues, up 8.2 percent year-over-year; net profit was up nearly 12 percent.

As has become the norm, most of Gamestop’s revs were driven by used games sales, which were up 19.4 percent. Same-store sales dipped by 7.8 percent overall; during the earnings call, CEO Dan DeMatteo attributed the drop to a decline in new console sales. The company expects that trend to change in Q4, though, driven by price discounts by *Microsoft*, *Sony* and Nintendo. EVP of merchandising and marketing Tony Bartel said Wii hardware and sales, in particular, would rebound for the holidays.

3Q 2009 3Q 2008
EPS $0.31 $0.28
Net Income $52.2M $46.7M
Revenue $1.83B $1.70B

Meanwhile, Gamestop is retooling its business to make digital a real revenue stream. Though DeMatteo cautioned that digital wouldn’t be a “significant” chunk of the company’s business next year, he did say it would grow.

In August, the company brought in *Playboy* digital vet Chris Petrovic to head up its new digital ventures business; Petrovic and another new hire, Ticketmaster vet Shawn Freeman, quickly got to work, as Gamestop announced that it had taken a stake in U.K.-based online gaming news, info and distribution platform JOLT. “JOLT will allow us to test digital distribution,” Bartel said. “We like the business model of being able to take IP from publishers, and then help them sell it when they port it to the browser space.”

Bartel and DeMatteo were coy on whether the digital investment was about “protecting” Gamestop’s in-store business, since the company said that it planned to offer downloadable content (game add-ons that come directly from the publishers) for purchase at retail. Bartel said the downloadable market was actually “underperforming” in both the U.S. and Europe because there was “lack of awareness” and “friction points” on the consumer end — which Gamestop planned to fix with in-store, on- and offline marketing. During the quarter, the company also launched e-commerce sites in Australia, Italy and Canada.

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