GameStop Corporation (GME), the video game and entertainment software retailer, recently announced the purchase of Spawn Labs, a technology company, which allows users to view video almost in real time. Moreover, GameStop also entered into an agreement to acquire Impulse Inc., a leading company in digital circulation.
Though the company did not disclose the financial aspects of the transactions, it announced that the buyout of the Impulse Inc., a subsidiary of Stardock Systems Inc., is expected to close in May 2011.
The acquisition of Spawn Labs will enable the clients of GameStop to gain instant way into a large number of HD quality video games on demand and will facilitate the company in delivering a rich experience to its customers through web-enabled devices.
Spawn Labs will complement the GameStop’s existing research and development team and will facilitate in enhancing the company’s growing collection of amusement products. Moreover, the acquisition is accretive to GameStop as Spawn labs will add its patented expertise and an accomplished team of technologists to it.
Additionally, Impulse Inc. offers a vast digital distribution platform, thereby helping the users to access their preferred games instantly with an option of downloading the same through their web-enabled devices.
The gaming industry is experiencing a transition leading to a decline in handy and console game sales with a rise in consumer spending on digital download, mobile gaming apps, social network games, and used games. In such a scenario, the acquisitions will help GameStop to hold the ground firmly.
The recent technological advancements has made the industry highly aggressive as the buyers now have multiple options to obtain video game accessories and softwares for gaming systems and computers.
However, at this stage, the consumers can only avail a limited number of PC entertainment software and older generation video games from the Internet. But, if the consumers’ accessibility increases, they may no longer prefer to buy PC entertainment software and video games through the company’s retail stores.
GameStop, which faces stiff competition from Amazon.com Inc. (AMZN), is well positioned to benefit from the gaming products and PC amusement software market. The company follows a strategy of store extensions in productive regions and offers the largest collection of games.
Moreover, GameStop holds a significant position in the used gaming products market. The company provides a greater selection of used video game products for both current and previous generation platforms. Besides, the market for these products has been resilient to the recent economic downturn.
The company intends to generate ample cash flow from operations in the coming years, to support opening of new stores, upgrading the existing ones, renovations, buyout plans as well as share repurchase program.
We prefer to maintain a long-term ‘Neutral’ recommendation on the stock. GameStop also holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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