Retail Middlemen Vanishing Into the Internet: Activision Blizzard, Inc. (ATVI), Best Buy Co., Inc. (BBY), GameStop Corp. (GME)

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People are buying things again, and they have been for a while. After all this time it is finally starting to make sense. Things might actually be picking up, though the labor market is still pretty awful. There are a few macroeconomic events that could bring the world to its knees, but let’s save that for another time. Retail is shifting online, but I want to see if there is still some life in physical stores. Obviously some stores will always be around, but others might not be so lucky.

GameStop could flare before snuffing out

The next generation of video game consoles is on its way, which is why I think GameStop Corp. (NYSE:GME) might get a bit more air underneath its wings. I am not saying it is going to become hugely profitable, but when the consoles start coming out, good news might flow out of GameStop Corp. (NYSE:GME). The share price has proven surprisingly resilient despite GameStop losing money. I once pondered whether there was room for Gamestop in today’s market, and I now don’t think there is.

GameStop Corp. (NYSE:GME) lost almost $350 million in the last 12 months. That is net income TTM, which means that it’s as of the last earnings report, which was in October. The company has no debt, but only $366 million in cash. I expect losses to continue, though the next earnings will have the holiday season factored in. Even if they look good, the long-term trend is troubling. Digital sales of games are increasing rapidly. The last physical PC game I bought was StarCraft 2: Wings of Liberty in 2010. I got a digital pre-order for Heart of the Swarm.

Publishers are also pushing back against used games, which delivered massive margins in days yonder. Forget the plans to have certain content require a purchase of a new game, now there are plans to tie a game to a specific console though that might not be implemented. Publishers are going to do everything in their power to make sure the concept of used games dies and remains buried.

Most game sales are going digital, whether through a platform like Steam or directly from the publisher. Used games are disappearing. Physical games and equipment have low margins, and face stiff competition from Amazon.

Nix the middleman, go with publishers

I am an Activision Blizzard, Inc. (NASDAQ:ATVI) game and stock fanboy. I love their games, and I think their stock is great. I might be position-free at the moment for various life-based reasons, but Activision Blizzard, Inc. (NASDAQ:ATVI) would be right on top of my “to buy half, write covered calls, and write cash-secured puts for the other half” list. I think I have mentioned that Activision has over $4 billion in cash, but just in case I’ll mention it again. Also, it is the only video game company to have a dividend.

Heart of the Swarm is upon us. It will bring in a lot of revenue. Activision Blizzard, Inc. (NASDAQ:ATVI) will probably have another Call of Duty game around the holidays, and that will bring in a lot of revenue. Skylanders as a franchise crossed the $500 million revenue mark.

Activision Blizzard, Inc. (NASDAQ:ATVI) is jumping into the mobile space with the launch of the Activate platform with Skylanders at the tip of the spear. I also think that Disney Infinity will bring more attention to Skylanders and help increase revenues. Just like how the Monday Night Wars in the 1990s actually created wrestling fans instead of just dividing existing fans up, though division happened later and one company folded. Initially, viewership grew as a whole because of the competition. I think Activision Blizzard, Inc. (NASDAQ:ATVI) goes higher from these levels.

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