GameStop Corp. (GME): What’s the Endgame for This Company?

Good news/bad news

When Microsoft Corporation (NASDAQ:MSFT) announced that Xbox One would be capable of playing used games without a platform fee, it sent GameStop’s stock higher. That was the good news, but the bad news is that Microsoft has the big picture in mind, which is to control the digital gaming market in the future. Microsoft Corporation (NASDAQ:MSFT) has a long way to go to get to that point, but once it does, it could spell doom for GameStop Corp. (NYSE:GME).

Conclusion

If you’re looking to play current trends in the video-game market, then GameStop has the most near-term upside potential. However, this is simply a momentum trade. This is still a company that saw a revenue decline and reported a loss in 2012; it owns a negative profit margin of 3.29%; and much larger companies are likely to eventually catch up to GameStop, putting enormous pressure on the company’s top and bottom lines.

If you want a future play for digital gaming, then consider Microsoft. Of course, Microsoft offers enormous product and service diversification well beyond video games, but if it can set itself up as the sustainable top player in digital gaming, then it will act as a significant revenue stream. Microsoft is already in the game with Microsoft Live Marketplace. Microsoft is also a more resilient stock thanks to its size and diversification. Furthermore, it yields 2.70%, slightly higher than GameStop Corp. (NYSE:GME)’s 2.60%.

Wal-Mart might expand its video gaming segment, but it would only act as a very small portion of the company’s revenue. Plus, even if a physical video game buy/sell/trade performed well, it would only be a matter of time before digital completely took over. If you’re looking for a dividend play, Wal-Mart currently yields 2.50%.

The article What’s the Endgame for This Company? originally appeared on Fool.com and is written by Dan Moskowitz.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool owns shares of GameStop and Microsoft. Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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