Activision Blizzard, Inc. (ATVI), Electronic Arts Inc. (EA): A Quick Sales Jolt From New Game Systems

Brick and Mortar

The biggest beneficiary might actually be GameStop. There is no doubt that the launch of the new consoles will present a long-term problem for the company as they push users toward downloaded content and away from physical game sales. So, on some level, Sony and Microsoft are looking to squeeze out this middle man.

However, for the six months or so following the launch of the new game systems, GameStop has an edge that others don’t—trade ins. This is a core part of the company’s business, representing about 25% of its top line. The money people get for trading in old gear and games is usually spent on new gear and games.

As customers upgrade to the new gaming systems, they aren’t going to be trading in a couple of games, they will likely trade in everything they have. That will mean a big uptick in business for GameStop in the months following the release of the new consoles.

A Bounce

The retailer’s top line has fallen over the last two years. The shares have recently pulled back after hitting a high around $40, still well below the highs reached prior to the recession. While the company has long-term challenges ahead, it is working to adjust its business to a digital world. A quick jolt from trade ins of old game systems and games could push the shares higher again.

That said, investors are probably best off waiting for a near-term pull back into the high 20s. That would test the upper bounds of a price range that the recent advance pushed through. Don’t get attached to the company, however, because it still has long-term issues to address.

And it Begins Again

The video game cycle is set to start again. That should be good news for the game makers, particularly struggling Electronic Arts Inc. (NASDAQ:EA). However, it should be particularly good news for GameStop in the near term, as it benefits from trade ins of older technology. While this won’t change the retailer’s long-term outlook, it could be enough to push the type of quick ascent that would interest a momentum investor.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard and GameStop.

The article A Quick Sales Jolt From New Game Systems originally appeared on Fool.com.

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