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We already know that Best Buy (NYSE: BBY ) stole Christmas. Those seeking out the antidote -- according to Wedbush Securities analyst Michael Pachter -- should turn their attention to GameStop (NYSE: GME ) .
In a conversation with Barron's Tiernan Ray, Pachter argues that Best Buy is toast as it can't woo the tech-savvy youngsters who do price shopping on the Internet or use the barcode scanning apps on their smartphones to make sure that they are getting the best deal.
I won't argue with Pachter's assessment of Best Buy, but how does that assessment not sink GameStop as well?
The Internet will be even worse for GameStop, because we're barreling toward the inevitability of digital delivery of gaming software.
For now, GameStop is holding up well. Sales climbed 4% to $1.9 billion in its latest quarter on the strength of positive stateside comps. It also boosted its profit guidance for the holiday quarter last month.
Helping GameStop's cause is that video game sales bounced back last month, fueled by the success of Activision Blizzard's (Nasdaq: ATVI ) Call of Duty: Black Ops and Microsoft's motion-based Kinect controller.
GameStop's small-box model appeals to rushed consumers who don't want to deal with the crowds and a typically longer drive to get to Best Buy. The same thesis hasn't done RadioShack any favors in recent years, but GameStop's niche is special. There's a healthy ecosystem of young gamers who continue to trade in their used games for new titles. Selling used games offers healthier margins for GameStop over moving shrink-wrapped titles.
There's a twofold threat to GameStop's gravy, though. On the one hand, digital delivery doesn't leave any used games behind to trade in. Then there's the competitive threat of Amazon.com, Best Buy, and even Toys R Us -- as all three ramp up their efforts to copy GameStop's trade-in model.
These threats won't be too evident in the near term. GameStop should have a monster holiday quarter. However, just as Research In Motion shares are being held back based on an uncertain future -- instead of its current rapid growth -- any rallies in GameStop's stock have been short-lived.
GameStop isn't the long-term antidote to Best Buy's malaise, though it may do well this particular quarter.
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