Citi’s sticking with Gamestop (GME) in the face of the stock’s recent dip. The firm thinks the gaming industry is strong despite the overall economic picture. They’re also encouraged by the current and upcoming slate of video games.
Industry growth remains robust:
Industry hardware sales totaled $458 mil (+43.1%) with console sales of $336 mil (+51.9%) and Wii sales up 99.6% YOY. Industry software sales amounted to $536 mil (+41.4%). On a per store basis, these growth rates are pacing well ahead of our 2QFY09 (-3% and +15.5% for HW and SW) and full fiscal year estimates, thus reinforcing our conviction that GME’s earnings are driven by the robust gaming cycle rather than the economic one. The countercyclical Used [game] business should also help GME weather the storm.
Top selling titles and E3 around the corner:
Not surprisingly, Grand Theft Auto IV topped the monthly rankings with 1.28 mil units sold. Mario Kart took second place with 787k units sold, followed by the Wii Fit, the new fitness product from Nintendo with 687k units sold. E3 will be held in Santa Monica from July 15 to 17. We look for additional catalysts to emerge in the form of title announcements (we suspect Nintendo has a few up its sleeve) and console price cuts.
Solid Title Slate:
Metal Gear Solid 4 was released today and could prove to be a very popular hit this summer. Other strong titles for 2H08 (up to 25 notable titles are waiting in the wings) are likely to include Guitar Hero for the DS, World of Warcraft EP, and Gears of War 2.
Citi reiterates BUY, target price $66.