Will Sony and Microsoft Save GameStop?

GameStop will release its quarterly report on Thursday, and after years of suffering tepid performance, investors have seen their shares more than double so far in 2015. Having made it through an extremely long period without refreshed offerings on the console-game front, GameStop is now looking forward to benefiting from the coming fight between Sony and its PlayStation 4 against Microsoft's new Xbox One. Will GameStop be a winner no matter which console reigns supreme?

GameStop looked like it might be on the road to ruin more than a year ago, as an incredibly weak set of new-release offerings combined with rising competition even on the pre-owned game front, which has historically been the specialty game retailer's strong point. But since then, GameStop has roared back, with the coming Microsoft and Sony game consoles showing just how much pent-up demand there is among gamers to get new offerings onto their screens. With the stock having climbed so far, though, are investors getting ahead of themselves? Let's take an early look at what's been happening with GameStop over the past quarter and what we're likely to see in its report.

Stats on GameStop

Source: Yahoo! Finance.

How well can GameStop do this quarter?
Analysts have gotten almost giddy in their views on GameStop earnings in recent months, boosting their October-quarter estimates by more than two-thirds and now expecting about 5% higher earnings for fiscal 2015 than they did as recently as August. The stock has responded in kind, with gains of 16% since mid-August.

GameStop has managed to hold its own in its wait for the new Sony and Microsoft consoles to arrive. In the July quarter, GameStop saw a massive 10.7% drop in same-store sales, with earnings falling by about half. Yet investors didn't let themselves get discouraged by those much-expected results, as they instead looked toward new game releases in the Grand Theft Auto and Call of Duty series to help GameStop tread water until the lucrative new consoles finally arrived in time for the holiday season.

Moreover, GameStop has defied many experts' calls that it would quickly become irrelevant in the growing push toward mobile gaming. The company's loyalty program has grown extensively, giving GameStop the information it needs to manage its inventory more effectively and cut its costs, boosting margins. Moreover, GameStop's initiatives to build up its mobile business have reaped considerable rewards, and the retailer has also managed to gain market share even as overall sales levels have been weak.

Perhaps the best news for GameStop, though, is that even as most investors point to the consoles as driving potential growth for GameStop, it's been actual physical games that have been selling quite well in recent months. That suggests that the good times could come early for GameStop even though the sales of new consoles won't show up in October-quarter numbers. It also raises the possibility of continuing demand for Microsoft's and Sony's older-model consoles going forward.

In the GameStop earnings report, watch to see whether the company comments on early sales of now-obsolescent PlayStation 3 and Xbox 360 game consoles. As more gamers upgrade, a thriving market for these old consoles might play a big role in GameStop's recovery. Since all of this activity is likely to have happened after the end of the October quarter, it'll be essential to look at GameStop's guidance to see if the company gives early indications on how November has gone.

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Editor's note: A previous version of this article incorrectly stated that the PlayStation 4 and Xbox One would be backward-compatible. The author and the Fool regret the error.

The article Will Sony and Microsoft Save GameStop? originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. 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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