Microsoft Corporation (MSFT): Xbox One Is Already Playing Catch-Up

The company is currently dealing with hedge fund manager Daniel Loeb’s call for a corporate breakup, separating the entertainment arm from the electronics group. While that would be great for the entertainment division, which is performing relatively well, it would make a turnaround in the electronics division much harder.

The Game group accounted for 10% of Sony’s revenues in fiscal 2013. If it scores a big win here it won’t put earnings in the black, but it would help to silence Loeb. That said, the company’s content division is a hidden gem, and the stock should interest investors looking for a turnaround opportunity.

Only a Near-Term Win

GameStop Corp. (NYSE:GME), meanwhile, is the biggest near-term winner from Microsoft’s used game course change. However, the long-term trend toward Internet content delivery has slowed, not altered. The company’s results should get a boost from trade-ins toward the end of the year and into 2014. That should help reverse the recently weak top-line.

That said, long-term investors should tread cautiously. The shares have already begun to head higher in anticipation of the new console launches, and the company still faces material long-term headwinds.

How Much Damage?

While Microsoft can handle a few hard knocks, the wounds it is licking right now are self inflicted. That could be good for long-term investors willing to look past the near-term problems. However, coupled with the “start” button issue, it is starting to look like Microsoft isn’t reading its customers very well. Playing catch too often is a problem. Investors need to keep an eye on this issue but should still take a look at the stock.

The article Xbox One Is Already Playing Catch-Up originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns shares of GameStop and Microsoft. Reuben 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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