Gamestop (GME)

Gamestop is growing rapidly in Europe, where the retail game market is fragmented. Of the 550 new stores new stores opening in 2007, a significant portion will be in Europe.

Throws out 400-500 million of FCF. Trading at 8x FCF. Fears of digital downloads,competition in used games are overblown. Walmart and bestbuy shut down operations of kiosks. Company is still opening new stores in US and overseas, buying back shares, paying down debt.

Strong demand across all revenue categories--new hardware, new software, and used games. Customer base of next-generation hardware is growing at breakneck speed, driving ew software sales and eventually, used software sales.

Gamestop's top management and CEO understand what lies ahead in the Video Game segments. Digital sales will create a new market; however, they will not decimate sales like CDs and Books. For one, Gamestop is in a similar position Barnes and Noble is in. Gamestop has a unique and highly niche business model that will help it continue strong sales and profit margins in used games and new hardware sales. This will accommodate tablets in the future.

The fact that Sony may release a portable device using digital downloads will not deter the fact that Gamestop can still sell digital games in its own store. The basis of retail stores is bring customers in to purchase more items than they intended. This occurs with the PowerUp rewards card, which is up to 10 million already. The added bonus of using in store credits to DLC and other games will only booster its effective use amongst customers. Gamestop could easily have the highest loyalty card usage amongst customers in its stores than any other retailer. Game Informer is one of the most informative magazines about video games from PCs to your beloved console based games.

For more information about Gamestop's future, read their last 3 years of annual reports, and focus on their continued vision in their latest earnings report. Although the price is getting a little high, there is still opportunities to enjoy the transformation Gamestop is undergoing. Please stay within your area of competence and invest value for long term growth.