We're a month away from that "most wonderful time of the year" for GameStop (NYSE:GME) investors. Christmas is the time for giving, after all -- and there are few things easier to gift, or more appreciated by the recipient, than video games.
Even though its third-quarter results haven't hit the Street yet, analysts have high hopes for GameStop's fourth quarter. One day shy of GameStop's third-quarter earnings release (due out before market open tomorrow), analysts predict that the company will earn $1.02 per share in Q4, fully 60% of the earnings they're expecting to see for the entire year.
As for tomorrow's results, the analysts are anything but optimistic. The 10 analysts surveyed by FirstCall predict average earnings of just $0.14 per share in Q3 -- a 42% decline in profits from last year's $0.24. The reason for all this near-term pessimism regarding the undisputed king of gaming retail? Fellow Fool Rick Munarriz nailed it back in October: Gamers (and presumably, gaming gift-givers) are saving up for the next wave of new gaming platforms and their accompanying new games.
True, Microsoft's (NASDAQ:MSFT) Xbox 360 debuted just last week amidst a massive publicity blitz. But that was too late, and perhaps too little, to help GameStop's retail Q3 results, as we're now well into Q4.
Perversely, it just might turn out that bad results for GameStop tomorrow will lead to rosier results in its fourth and future quarters. If consumers were saving most of their pennies in Q3, chances are they will be spending them on Xboxes in Q4, and on Nintendo's and Sony's (NYSE:SNE) new offerings in fiscal 2006. More importantly, those low- and negative-margin hardware platforms will likely lure consumers in to spend freely on their high-margin games in coming quarters.
That brings us to what we should look for tomorrow. The past quarter's results will pale in significance to what the company predicts for Q4 and beyond. Over the past three years, GameStop has earned just 19%, 17%, and 16% of its full-year profits in the third quarter, compared to the 62%, 63%, and 50% earned in the fourth quarter. Same goes for tomorrow -- whatever results the company reports for Q3, its forward guidance will truly determine GameStop's rise or fall.
For more Foolish coverage of GameStop and its new acquisition, Electronics Boutique, boot up the following:
- Hands Off My 360, Buddy
- No More ELBO Room
- Is Electronics Boutique's Strategy Sound?
- Playtime at GameStop: Fool by Numbers
GameStop is a Motley Fool Stock Advisor recommendation. For more great ways to get in the stock market game, check out Tom and David Gardner's full list of high-scoring stocks with a free trial subscription.
Fool contributor Rich Smith holds no position in any of the companies mentioned in this article
