When it comes to investing into GameStop Corp. (NYSE:GME), investors have to think that there is just way more downside than upside in the company.
In a previous article, I mentioned that the stock was going to report a substantial decrease in earnings because of digital sales of content on the next generation PlayStation 4 and XBox One consoles. Since the release of the article, (May 15) the stock has declined by 15%. The decline of the stock should continue as the company’s online retail strategy is unlikely to be any better than operating full blown retail stores.
How to trade GameStop
When I think of GameStop Corp. (NYSE:GME), I think of a business that is becoming a bit of a legacy. Selling video games in the retail format increases the cost for content producers and hinders creativity. GameStop Corp. (NYSE:GME) became an added cost, which both Sony Corporation (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT) had to let go.
Sony Corporation (ADR) (NYSE:SNE) anticipates that, in fiscal year 2013, console shipments of PlayStation 3 will decline from 10 million to 5 million. The decline in shipments may imply the amount of revenue that GameStop Corp. (NYSE:GME) will be able to generate from the console could be reduced by half. Over time, the number of PlayStation 3 users will decline as they upgrade their console systems. GameStop Corp. (NYSE:GME) will have to rely on the sales of used games for XBox 360, and PlayStation 3 meaning that the business is undoubtedly heading towards one trajectory, which is downwards.
Hedge fund analyst Josh Burwick added to the negativity surrounding the stock by stating that shorting the stock could bring a 50% return.
Stronger opportunities in Sony
I believe that Sony Corporation (ADR) (NYSE:SNE) should merit an investment opportunity. In an environment of declining Japanese yen values, the stock should be able to report inflated earnings. However, there is a limit to this strategy, so I’m not basing my optimism on currency fluctuations alone.
Sony’s release of its new Sony Xperia ZL has been the cornerstone to turning the company’s earnings around. The mobile segment was able to grow by 81.5% year-over-year in the most recent quarter. Sony’s financial arm, Sony Bank, was able to grow earnings by 18.6% year-over-year in the most recent quarter.
The company grew earnings in its mobile division, which is the primary reason investors should consider an investment into the company. There are many Sony brand loyalists in the world left. However, consumers weren’t given a very compelling phone offering, especially not in the United States. Now Android users can enjoy their favorite operating system from their favorite brand.