GameStop shares fall after Walmart announces video game deals signaling possible price war

Wednesday, December 2, 2009

GameStop shares tumble on Wal-Mart game deals

NEW YORK — Investors sent GameStop shares sharply lower Wednesday amid worries that the Wal-Mart’s video game promotions could undercut holiday sales at GameStop Corp.’s more than 6,000 retail stores nationwide.

Wal-Mart Stores Inc. said it is lowering the prices of 25 of the most popular video games — such as “Halo 3:ODST” and “Left 4 Dead 2″ — until Christmas Eve by 15 percent to 20 percent. It’s also running a promotion from Saturday through Dec. 12 giving shoppers who buy the $199 Wii game console a $50 gift card.

“This news is clearly a negative for (GameStop) which generates the bulk of its sales during the holiday season and may be forced to reduce prices to stay competitive,” said Janney Capital Markets analyst Tony Wible in a note to investors. He added that many of GameStop’s stores are near Walmart outlets, and GameStop “has historically sought to benefit” from foot traffic at the big box retailer.

On Wednesday, GameStop’s Web site listed “Left 4 Dead 2″ as selling for $39.99 — down from its regular price of $59.99. “Halo 3: ODST” was listed at $39.99 as well, down from $49.99.

These are lower than the $50 that Wal-Mart is asking for the games. But other games, such as “Mario & Sonic at the Olympic Winter Games,” are cheaper at Wal-Mart, and GameStop isn’t offering a gift card for a Wii purchase.

GameStop spokesman Chris Olivera said the cuts are not in response to Wal-Mart’s announcement but are part of regular deals GameStop offers. He said the Grapevine, Texas-based company has 2,500 games and related items that sell for under $20.

Benjamin Schachter, an analyst with Broadpoint AmTech, said he thinks investors are overreacting to Wal-Mart’s news, but he added “there will be some blood from this fight.”

“It is important to note that virtually every week, various big box retailers and (GameStop) offer value bundles on hardware and various promotions/discounts on software; this type of activity is not a new phenomenon, but clearly this is more aggressive than in the past and than we expected,” Schachter wrote in a note to investors.

Games are not the only category Bentonville, Ark.-based Wal-Mart is discounting as it tries to lure shoppers to its stores. Online, the retailer along with rivals Inc. and Target Corp. have been locked in a price war on highly anticipated books and DVDs.

GameStop, like most video game companies, makes a big chunk of its annual revenue during the holiday season. GameStop has been optimistic about the holidays, and in November it reaffirmed its guidance for the fourth quarter.

Wal-Mart’s decision to focus on video games with its holiday price cuts takes advantage of the sector’s popularity as gifts. However, games are unlikely to do as well this year as they did last year, when Americans spent more than $21 billion — a record — on game software, hardware and accessories, according to NPD Group. This year there have been fewer hit games and the recession has led customers to be more selective about what games they buy.

Shares of GameStop fell $1.97, or 8.3 percent to close at $21.87. In the past 52 weeks, the stock has traded between $18.01 and $32.82.

December 26, 2009: 3:40 am

Yeah, you are right, video game companies makes a big chunk of its annual revenue during the holiday season.

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