Why GameStop Shares Popped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of video game retailer GameStop climbed 10% today after Microsoft announced that it will not charge a fee for playing used games on its new Xbox One entertainment system.
So what: GameStop shares plunged last month on uncertainty about how its model would look if Microsoft levied a special fee for playing preowned games on Xbox One, so the announcement naturally comes as a huge sigh of relief for investors. In fact, GameStop generates nearly half of its profits from selling used games, triggering bullishness over the company's ability to not only survive but possibly even thrive going forward.
Now what: GameStop announced that is now taking preorders on Xbox One, as well as for Sony's PlayStation 4, which will also allow used-game sales. "Our pre-owned game business has slowed with the decline in new titles," CEO Paul Raines said in a recent conference call. "In spite of that decline, our pre-owned video game business has performed far better than the new software category, and we expect that business to return to growth as consoles accelerate." So while GameStop continues to face powerful long-term digital headwinds, used games may be able to fuel outsize gains for at least one more console cycle.
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The article Why GameStop Shares Popped originally appeared on Fool.com.Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool owns shares of GameStop and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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