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GameStop to Start Tablet Trade

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GameStop Corporation (GME - Free Report) , a video game and entertainment software retailer, has undertaken a series of initiatives to boost its top line. Recently, the company announced its plans to extend its mobile electronics business by providing trading services for a varied range of Android tablets.

The company also announced that it was accepting pre-orders for Google Inc’s Nexus 7 Tablet, which is slated to release in mid-July. The product was recently showcased at Google’s I/O developer conference. The tablet features the latest Android OS system and is priced at $249.

The consumers can place orders for the new tablet at GameStop’s stores in the U.S. The consumers placing orders will enjoy a 30% trade bonus discount on all further purchases of video game hardware, software and accessories along with iDevices and some eligible Android tablets.

Management is banking on the increasing demand for Android tablets and the ongoing multiscreen gaming trend to drive customer traffic and thereby boost the company’s top line going forward.

Of course, right through the recent economic downturn, GameStop fared better than many of its peers because of its recommerce business. GameStop holds a significant position in this used video game products market. It has a good selection of used video games for both current and previous generation platforms, which helped drive sales.

Management believes that the company’s recommerce initiative has been gaining momentum and it has therefore taken steps to further boost the business. For this purpose, it rolled out a model offering instant cash or in-store credits in exchange for used Android tablets of popular brands based on model, memory size and physical condition. The company also started a recycling program, which will help consumers to dispense with non-functioning or impaired tablets.

We consider GameStop’s recommerce initiative to be a smart move given the slump in the video gaming industry, which has been taking a toll on the top line. As a result, we believe that the company’s venture into the digital, iDevice and gaming tablet businesses would be accretive to its results.

The video game industry is highly competitive, and video game shoppers now have many alternatives to buy software, hardware and game accessories for video game systems and personal computers. Retail heavyweights such as Wal-Mart Stores Inc. (WMT - Free Report) , Target Corp. (TGT - Free Report) and Best Buy Co. Inc. (BBY - Free Report) have also entered the video game market. These larger retailers could make a dent in GameStop’s sales and margins.

GameStop carries a Zacks #3 Rank implying short-term Hold rating for the next 1-3 months and correlates with our long-term Neutral recommendation.

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