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Analysis: GameStop Profit Margin On Used Almost 50%
Analysis: GameStop Profit Margin On Used Almost 50%
April 28, 2009 | By Leigh Alexander, Matt Matthews

April 28, 2009 | By Leigh Alexander, Matt Matthews
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Just how lucrative is GameStop's used games business? For every dollar of revenue from pre-owned games and consoles, the company gets 48 cents of gross profits -- that's a margin of nearly 50 percent.

Overall, GameStop's total revenue climbed to $8.8 billion in the fiscal year ending 31 January 2009, up from $7.1 billion in the previous fiscal year, an increase of 24%.

In fact, GameStop's revenue for the past year was 2.8 times the size of its revenue just three years ago.

And, as part of a larger Gamasutra-exclusive analysis on the state of GameStop's business, analyst Matt Matthews explains that gross profit margin is the gross profit divided by total revenue.

For example, Matthews explains, if you take in revenue of $60 on a unit of software and that software originally cost you $54 to obtain, then you have $60 in revenue and $6 in gross profit or $6/$60 = 10% gross profit margin.

New software generates tremendous revenue for GameStop, but the cost of goods for new software is likewise somewhat high. Used products, on the other hand, cost GameStop less to purchase, stock, and distribute. In particular, it can be resold at much higher values than purchased or traded in for.

Thus, GameStop's margins as cents of gross profit per dollar of revenue (e.g. 10 for each dollar of revenue) can be calculated, as follows:



This figure hammers home just how lucrative used product sales are for GameStop. On average, they get 48 of gross profit for each dollar of used product revenue. The "Other" category includes high-margin accessories, and of these, GameStop gets to keep almost 34 for each dollar of sales.

As is widely known in the industry, GameStop's used game sales are far more profitable than its sales of new games; new software and hardware yield margins of 21 and 6, respectively.

These margins are actually relatively static from year to year for GameStop, Matthews explains. However, with rocketing revenues overall, the full article notes that used product accounts for somewhere between 41 and 46 percent of GameStop's gross profit.

In the last fiscal year, gross profit on used product almost reached $1 billion for the first time in the company's history. (The exact figure was $974.5 million, or 42.9% of the company's total gross profit.)


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Comments


oscar jaime
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The only thing they want is to take as much as they can before the totality of games are distributed online

Mark Morrison
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oscar - very prophetic

Emanuele D'Arrigo
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It is quite obscene, isn't it? Here in the UK chain stores such as Blockbusters have similar margins. You buy a new game from them for 35. You sell it back a few weeks later for 10 even though is as good as new. In less then a day it's back on the shelves for 19, 24 and maybe even 29.



Ultimately it's our fault, the sellers of our own used games. If the condition of the package/disk is as good as new we shouldn't accept anything less than 75% of the current price of a new item.

Peter Dwyer
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I think the profit margins are rediculous. The seller should be entitled to a bit of profit for selling the game on but, it should never be less than half the original sale price.



I hate digital downloads because I like to actually own the stuff I buy and be able to do with it what I please. I think as more and more people get disillusioned with the digital download restrictions. Those companies hell bent on going solely that way will start to see a tail off in sales. The answer may well end up being to have a rental service of the games, where downloading them allows you to play for a few days but, at a small outlay of 3 - 5 pounds/dollars/yen

Jonathan Balser
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I agree that the margins are absurd. So much so that a few years ago I founded a company dedicated to building an advanced peer-to-peer video game trading site called Mooch. After all, why trade in games for a fraction of the new price when we can just trade our perfectly good used games with each other? The site is called Mooch (www.mooch.com) and the beta (which is currently free) launched last month. For those of you sick of getting killed on trade-ins, I hope you will check it out.

Meg M
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To everyone who whines about GameStop's trade in values:



If you don't like the price offered, then don't sell your game to GameStop.



It's really quite simple.



No one makes you sell your used products to GameStop. No one points a gun at you and tells you that you have to sell your games to GameStop. The price is stated to you and you know what? You don't have to take it! Sell your products to friends or on eBay and quit bitching.

Jenn A.
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It doesn't make a difference if they go to Gamestop or any other place that buys used games...they all do the same thing, Meg. The only other way you could get the money you deserve for your used stuff is tell sell it online yourself....and, face it, in an economy where people need the money NOW, who wants to wait that long?


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