While discussing GameStop's financial performance for 2008, Janco Partners' Mike Hickey has revealed estimates of a 20% software growth for the year, and suggested that GTA IV could ship 5.8 million units within the first week.
“We are modeling for the video game industry to grow significantly in 2008,” Hickey began, “While we are cautious over the potential implications of a weakening domestic consumer, we believe recent next-gen console price cuts, market share gains, killer content releases (Halo 3, GH III, Rock Band, GTA IV, etc.), new store openings ... will continue to fuel strong financial performance. We are currently projecting 20% domestic video game software growth.”
“We expect they [GameStop] will benefit from the release of GTA IV in their fiscal 2008 period,” continued Hickey. “GTA IV could ship 5.8 million units in the first week ($360 million in retails sales)," noting that Take-Two has said recently that pre-orders for the game were tracking higher than anticipated, which should directly benefit GameStop.
The Used Game
Despite economic downturns affecting comsumer attitudes, Hickey said "we expect gamers will likely appreciate the Company’s used game opportunity where they can create credit/currency from trade-ins to offset new purchases.”
“A fiscally stressed consumers is more likely in our view to buy used games (lower price point), which represent the highest margin product sale (roughly 50%) for the Company,” Hickey explained. “Used games sales should begin to accelerate as they are able to build meaningful inventory, a natural process provided from the maturation of the current gaming cycle.”
Hardware Up 17%
While software sales are expected to grow in excess of 20%, Hickey also explained that Janco Partners expect hardware sales (PS3, 360, Wii, PS2, DS, PSP) to grow by 17%, with particular growth to be seen in the PS3 and PSP.
“We expect PS3 unit sales will perform exceedingly strong in2008, due to a recently reduced price point, killer content coming into the channel, and Blu-ray currently having a decided edge in the high definition format war,” Hickey argued, “We believe the slower relative adoption rate of Sony’s PS3 console was a reflection of an unfavorable retail price point ($600), lack of distinguishing content, highly competitive hardware options (Wii), and general value confusion over the console’s embedded Blu-ray player.”
“Considering Sony has sold in excess of 120 million PS2 units globally, we anticipate the PS3 adoption rate could accelerate meaningfully in the coming years as the aforementioned issues are addressed and legacy PS2 players’ accelerate their transition to current gen.”
With the PSP, Hickey was aware of “at least one” major domestic retailer that sold out of PSPs during the recent holiday, “suggesting 2008 PSP sales could be strong.”
“Sony also raised their PS2 forecast from 12 million to 13 million units,” Hickey continued, “suggesting continued strong demand for a console nearing its 8th year in the market. We believe Sony will cut the price of the PS2 in 2008 to $99, which could be a catalyst for units sales similar to the prior year and measurable ahead of EA’s projections. “
Hickey’s forecasts for the Nintendo Wii were similarly positive, as he concluded: “The consumer demand for the Wii console continues to surpass market expectations and is currently tracking PS2’s growth from the prior cycle. If Wii console sales continue to track PS2 sales from the prior cycle, Wii sales could total over 8 million in 2008.”