Shares of GameStop Corp. (GME - Analyst Report) jumped 6.2% to close at $36.75 on Friday, getting a boost from Microsoft Corporation’s (MSFT - Analyst Report) announcement. Microsoft cleared the speculation surrounding the future of pre-owned games and stated that Xbox One is enabled to play used games and is also not going to levy platform fee, thus enabling the smooth transfer of used and pre-owned games.
This decision comes as a breather for GameStop, shares of which were hit hard recently as media reports widely conjectured that Microsoft would charge a special fee for playing used games on its new Xbox One, while GameStop being the world’s largest reseller of used video games was apprehended to be the worst hit. Moreover, the company’s profitability was at stake as it generates nearly half of its profits from pre-owned video game products.
GameStop is not the only company that is anticipated to benefit from this, the move is likely to auger well for Microsoft and game publishers like Electronic Arts Inc. (EA - Analyst Report) as well. GameStop’s buy-sell-trade model of selling new games and buying back used games and PowerUp Rewards program make it a popular destination for gamers.
The company through its PowerUp Rewards program enjoys a loyal following of more than 30 million customers and tapping such a voluminous audience is likely to help all parties to enhance their reach and generate incremental sales.
In light of the key holiday season, Microsoft is set to launch its Xbox One globally during Christmas. Moreover, another industry bellwether, Sony Corp. (SNE - Analyst Report), announced its plans to launch PlayStation 4 around the same time.
The video game market remains highly fragmented with a large number of companies competing to gain market share. Despite the headwinds, we believe that companies with greater focus on the digital content will perform relatively better.
Currently, GameStop maintains a Zacks Rank #3 (Hold).