Why GameStop Is Going to Win in 2014

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Going into 2013, things were looking horrible for GameStop (NYSE: GME  ) . Articles near the beginning of the year often referenced the company's irrelevance and stagnation. At that point, the business was looking rough, with overall sales falling during the 2012 holiday season. Somehow, the business managed to get through the first few months of the year, and then the next generation of consoles came into sight, like an oasis in the desert.

Why won't you just die?
The real kicker was when Microsoft (NASDAQ: MSFT  ) bowed to ill-informed consumers, who were whipped into a frenzy by the potential for used-game oversight in the original version of the console. I say "ill-informed," because the backlash forced Microsoft to remove some very forward-looking features from the Xbox One, like the ability to lend games digitally. The trade-off would have been that selling a used game may have required a new code from Microsoft or the game publisher, putting used-games sales, as gamers know them, in jeopardy.

That trade-off allowed GameStop to keep operating as usual, without having to quickly adapt to the future of games. Microsoft's mistake -- the result of a PR failure more than anything -- was GameStop's big win, and once it saw that little was going to change in the next generation, it just needed to get by until the consoles were launched. Now we're living in the bright future, and GameStop is ready for a nice run through the whole of 2014.

A year of games
In the coming year, Gamestop will see a new console cycle that brings in used Xbox 360 and Sony PlayStation 3 games, as well as fresh new titles to sell. Gamers will have new titles like Titanfall, Metal Gear Solid V: Ground Zeroes, and Destiny, along with reduxes, like Thief, to drain their wallets -- GameStop will be there to help.

In 2006, the year after the Xbox 360 launch and the year of the PlayStation 3 launch, GameStop grew revenue by 72%, and comparable sales were up 11.9% compared to 2005. Due to the increase of digital sales, the shift to downloadable content, and the increase in casual gamers as a percentage of total gamers, it's unlikely that 2014 is going to have quite that large an increase. Very unlikely.

But it's going to be a good year. GameStop's 2013 started out rocky, but ended up seeing the stock rise 98%. That's indicative of the momentum that the new consoles have brought to the brand, and should demonstrate the ability of this scrappy company to keep it going in the face of defeat. While the next-next generation of consoles may spell disaster, those aren't going to be here anytime soon, and they certainly won't impact GameStop's 2014.

Set yourself up for a 2014 win
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

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9/27/2016 4:01 PM
GME $27.43 Down -0.21 -0.76%
GameStop CAPS Rating: **
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Microsoft CAPS Rating: ****