Why GameStop, hhgregg, and RadioShack Tumbled Today

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Stocks got back on a positive footing Tuesday, with positive trade-deficit data making investors more optimistic about U.S. economic growth. Major-market benchmarks finished the day up 0.5% to 1%, but for GameStop (NYSE: GME  ) , hhgregg (NYSE: HGG  ) , and RadioShack (NYSE: RSH  ) , the news wasn't nearly as good.

GameStop declined 8% after Sony (NYSE: SNE  ) announced that it would offer a streaming video game service for users of its PlayStation 3, 4, and Vita consoles. The news is obviously bad for GameStop, which relies on used game sales as some of its highest-margin business. Nevertheless, digital-download concerns have been a threat for GameStop for a while, and at least while consumers remain excited about new PlayStation and Xbox consoles, GameStop's business isn't likely to take an immediate hit. In the long run, though, GameStop needs to figure out how it will adapt to a digital environment.

The 11% drop in hhgregg shares today added to yesterday's 5% losses, with the electronics retailer having issued a warning about its revenue from the holiday quarter. The company said yesterday that year-over-year sales would drop 11.6%, with an 11.2% plunge in comparable-store sales producing most of the revenue decline. CEO Dennis May pointed to weakness in its consumer electronics, computing, and wireless products during the quarter, and while he emphasized that hhgregg would remain profitable, he said that promotional offerings throughout the industry hurt its results. The big question for investors is whether the rival Best Buy (NYSE: BBY  ) will see the same pressures, or whether its own competitive activity proved more successful than hhgregg's did.

Elsewhere in the electronics industry, RadioShack fell 6% after The Wall Street Journal reported last night that the stock had seen substantial options activity among investors entering positions that would profit from a continued drop in the company's stock. RadioShack has attracted attention from short-term traders in the past, especially during times of financial turmoil for the company. Unless the holiday quarter offers some positive surprises for the company, RadioShack could continue to see bearish investors making bets on its possible demise.

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  • Report this Comment On January 07, 2014, at 11:17 PM, bluesky64 wrote:

    Dan,

    SNE win is an AMD win. Plus this win has more legs as China lifts the 14yr ban on game console.

    Nintendo shares surge as China eases gaming console ban TOKYO (Reuters) - Shares in Nintendo Co Ltd jumped as much as 7.5 percent to a two and a half-year high on Wednesday after China temporarily lifted a 14-year-old ban on selling video game consoles.

    The move could pave the way for Nintendo, Sony Corp and Microsoft Corp to enter the world's third-largest video game market in terms of revenue.

    "Nintendo hasn't had a catalyst for a long time, so if it can revive (via) the Chinese consumer market then it would be positive," a Tokyo-based trader said.

    Still, console makers are likely to face an uphill battle in a country where a whole generation has grown up without a Wii, PlayStation or Xbox. The most popular video games in China are often free to play with gamers only paying for add-ons such as weapons or extra lives.

    Price may also be a problem for console makers looking to expand in China. More than 70 percent of Chinese gamers earn less than 4,000 yuan ($660) a month, according to Hong Kong-based brokerage CLSA, not much more than the price of a new Xbox One in the United States.

    Another possible hurdle is the availability of illegal consoles, which are modified to run pirated games.

    A Nintendo spokesman said on Tuesday the company was still unsure what the opportunities were in China.

    Its shares, the seventh most-traded on the main board so far on Wednesday, rose 6.8 percent to 15,280 yen, while the benchmark Nikkei average gained 1 percent.

    The Tokyo-based trader said Nintendo was also benefiting from a weaker yen. The Japanese currency was quoted at 104.69 yen to the dollar, not far from a more than five-year high of 105.45 yen set on January 2.

    In contrast, shares of Sony, whose business extends beyond game consoles and which is less sensitive to a weaker yen, slipped 0.2 percent to 1,796 yen. Sony's stock outperformed its rival in 2013, rallying 91 percent against Nintendo's 55 percent.

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