GameStop Corp (GME), Amazon.com, Inc. (AMZN): The Game Has Changed

GameStop also offers the lowest projected P/E ratio at about 10, compared to 12 at Best Buy, and over 14 at Walmart. Considering that Best Buy and Walmart have lower growth rates, and lower yields, it’s no surprise that GameStop seems to be a better value. Where Amazon.com, Inc. (NASDAQ:AMZN) is concerned, the company carries a projected P/E ratio that is over five times its growth rate. With GameStop trading for about equal to its growth rate, Amazon is priced for perfection plus some.

…But, two threats could end this game
The two threats on the horizon, come from Microsoft Corporation (NASDAQ:MSFT)’s new Xbox One, and Sony Corporation (ADR) (NYSE:SNE)’s Gaikai streaming service. The Xbox One poses a challenge to everyone in the used game business. Microsoft Corporation (NASDAQ:MSFT) will lock each game to a gamer’s Live account. If they want to sell the game, there will be an “unlock” fee to do so. It’s very likely this will put a damper on selling used games, and may drive sales even further toward digital receipts.

If gamers have to pay $10 to “unlock” a game and sell it, this may eliminate certain sales completely. A game worth $10 today, might be worth nothing with this unlock fee. Let’s say you want to buy Call of Duty: Modern Warfare 2. You can buy it online for $29.99, or you can buy it in the store (at a higher price because of the unlock fee) for $40, which are you likely to do?

The second threat comes from Sony Corporation (ADR) (NYSE:SNE)’s Gaikai service. For those who aren’t aware, Gaikai will offer the ability to stream games from the cloud to not only consoles, but also televisions, PCs, and tablets as well. This service’s vision is, to offer current graphic intensive games through the cloud. Since the platform doesn’t matter, used game sales could be a thing of the past. Imagine being able to stream a PS2 game, and then minutes later playing a PC game. With inter-changeable content, used game discs would seem antiquated.

With these two threats coming to market near the end of the year, GameStop could be in real trouble. If gamers aren’t willing to deal with used games the way they do now, almost 48% of GameStop’s income is at stake. While the company does make money on new hardware and software, used games are its bread and butter. If these two threats hurt the company’s used game sales, it could be game over for this retailer.