Third, in large, widely diversified firms like GameStop, decision making can become slow in response to market conditions.īased on the reasons we mentioned above, we use a fairly conservative way of estimating the company's growth rate at 3% rather than a 5.5% growth rate in U.S. It is hard to believe that only 17% of players in China are willing to purchase genuine video games. This may lead to the company's demise in China if it fails to adjust the strategy properly. Another possible hurdle for GameStop are the regulations and laws in China. This is a very different business and GameStop's knowledge and other competencies were of little value. Simply put, it is not reasonable for a normal player in China to purchase a game at $40 to $50 when most of the popular online games are free. GameStop had to change their competition-based pricing strategy and business model to respond to the rapid changes in China. However, there are still many aspects of China that GameStop has to look into.įirst, the way people in China buy and what they buy is beginning to change in recent years especially in retail sales of video games and consoles. GameStop recognizes that China is a promising market and will continue to undertake acquisitions to extend its technology base and product portfolio. Even though the old and new consoles cannibalize each other's sales volume in new video (console) games now, we do believe that as time passes and advanced technology comes along, the newest consoles will have more sales on new video (console) games.Ĭhina Market Consideration: It is worth mentioning that China has temporarily lifted a ban on selling video game consoles three months ago, paving the way for game manufacturers or game retailers to enter the world's third largest video game market in terms of revenue. The average sales per year for last generation are 7.3 million per year, and previous generation are 12.1 million. The average sales of seventh generation consoles are around 11, 14.3, and 11 million for PS3, Wii, and Xbox 360 per year, respectively. The average sales of eighth generation consoles are around 12, 3.3, 6.5 million for PS4, Wii U, and Xbox One per year, respectively. We compare video games sales volume to total consoles' sales. However, 2015 first quarter of software sales reveals that growth rate had increased roughly 5%. The demand of new generation console declines and speed of publishing new video games on last generation consoles did not meet expectations. We believe this trend was due to the change of seventh generation consoles, such as PS3, Wii, and Xbox360 to eighth generation consoles like PS4, Wii U, and Xbox One. This chart shows that video (console) games sales declined year by year from 2010 to 2014. The revenue components consist of computer, video (console) games, and others (see chart below). video game industry was $15.4 billion in 2014. market was $22.41 billion in 2014 and is expected to reach $23.64 billion in 2015.Įxcluding accessories and hardware sales, the total market share of the U.S. market will have 5.5% CAGR until 2019 also the global video games market is around $102.9 billion in 2015 and will be $107 billion in 2017. Newzoo and PwC predict that global video games market will have a CAGR of 7.09%, and U.S. We predict a target price of $49.86, nearly 13% upside to today's closing price. We recommend investors buy GameStop Corporation ( NYSE: GME) since the video game industry has future rapid compound annual growth rate (CAGR) of 5.5%, and GameStop dominates the video game market.
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