Mad Catz Interactive (MCZ) and GameStop Corp (GME)
Written by Kay Elizabeth
Friday, 24 August 2007
GameStop's brilliant earnings announced on 23 Aug for Q2 2007 should give everyone in their sector reason to be of good cheer. Even the GME competition may be tempted to give a grudging nod of approval in their direction.
Why? Simple really. The company is regarded by some analysts as the benchmark for the video games sector and one of the best indicators of what lies ahead in terms of business. When GameStop Corp (GME) predicts the outlook as promising and positive, it's welcome news for everyone else.
Putting it plainly, if you want to judge future business within the sector using GameStop as your yardstick, it looks very good indeed.
"They clearly own the specialty retailer video game space," said Mike Hickey, an analyst with Janco Partners. "They offer the one-stop source to get educated and to try out all the different hardware, software and peripherals."
According to Marketwatch 23 Aug :
GameStop is benefiting from the current video game console upgrade cycle. The last 9 months has seen the debut of the PlayStation 3 from Sony Corp. and the Nintendo Wii. The upgrade cycle also includes the Xbox 360 from Microsoft.
In a conference call, GameStop executives noted that the Wii continues to sell out quickly, while sales of the PS3 and 360 have jumped since Sony and Microsoft announced price reductions during the quarter.
The company is also not worried about the shift of Take-Two Interactive's "Grand Theft Auto IV" from this year's holiday window. [to April]
"We really believe that the games that are coming out in the third and fourth quarter will make up the majority of any missed Grand Theft sales," GameStop CEO Dick Fontaine said on the call, pointing to upcoming action titles such as "Call of Duty," "Mass Effect" and "Assassin's Creed."
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GameStop is the world's largest video game retailer, with only a few hundred shy of 5000 stores between the US and Europe. It seems logical that any company with a product within GameStop's stores stands a good chance of grabbing a slice of the sales pie.
Mad Catz is in the fortunate position of having multiple products there. Since there are more new highly anticipated games coming out and a rise in the number of gaming systems sold as described above, it's fair to expect an increased demand for controllers and other accessories.
The more units there are out there, the more improved the chance of add-on purchases. It's worth keeping in mind two things: the rise in gaming system sales attributed mainly to price reductions is likely an unexpected bonus for GameStop and that it doesn't even take into account the holiday purchases that'll be further down the line.
The peripherals supplied with any gaming system are simply not built to have an indefinite lifespan. The majority of gamers need to replace them at some point or do so because they want a change, a new look, or simply to show off which team they support or game they're a fan of. No matter which gaming system you buy - any version of an Xbox, Playstation or Wii - the likelihood is you're going to need replacement accessories in the future.
Mad Catz Interactive has the products to fulfill those needs and is right there in front of potential buyers every time they walk in a GameStop store, (not forgetting that there are over 4800 stores worldwide) ready to give them what they came in for. We all like to keep life as simple as possible and you can't get a much easier way to shop than that.
With parents no doubt already starting to plan ahead for the festive season and counting the pennies, MCZ should be ho-ho-ho-ing at the thought of the GameStop registers ringing throughout the runup to Christmas and what is traditionally their best quarter still ahead.
Many don't realize that Mad Catz is one of the largest third party game peripheral makers in the world, if not the largest.
Hot on the heels of MCZ's record gross profit margin of 32% for Q1 2008 announcement, GameStop's glad tidings- including their increased guidance for both Q3 and 2008- will almost certainly be bringing Mad Catz Interactive and their savvy investors comfort and joy.
Also, MCZ has the Halo3 Microsoft contract for skins and faceplates. MCZ also has Mass Effect, Assassins Creed and soon GTA. MCZ is trading at a pe of 13.
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