GameStop’s ‘New’ Competitor (GME)

It is always interesting when you see a pure-play monopoly, and out of video game stores it is arguable that GameStop (NYSE:GME) is a pure-play monopoly on a video game focused business strategy.  24/7 Wall St. is not at all suggesting antitrust issues or predatory actions or anything of the sort, because there are the behemoths Best Buy, Wal-Mart, Toys R US, online giants, and many other large stores that sell games.

But there is a company that was just noticed as having grown after looking through press releases today, and this is a company we looked at before and had forgotten about.  A company called Play N Trade put out a press release about the winner of its Halo 3 tournament, but it was a little surprising how fast the company has grown and more importantly how much it wants to grow.  It claims 95 video game stores currently, but it says that it has sold more than 400 franchises.  On the store location site, we counted over 100 stores for Play N Trade that were either open or coming soon.  Its website has the goal of reaching close to 200 stores by the end of 2007 and a national presence of 1,000 stores in the next 3 years.

GameStop operated some 5,000 stores as of last look.  So this is not even 1/10 the size of the video game giant the merged Electronics Boutique with GameStop stores into the largest pure-play video game retailer out there.  You can also be sure that GameStop will grow its store count in the U.S. and much more internationally while Play N Trade is on its growth plans. 

Play N Trade’s "investment required" is listed as $125,000 to $150,000 on the Franchise.com web site, although the "investment required" for most franchises is usually not the full costs for running a business to success.  GameStop’s market cap is just under $9 Billion, which gives it a value of $1.8 million per store if you discount the online sales and the content sales etc.

Its doubtful that GameStop will even notice this in the immediate future, but this could be an issue that GameStop at least notices when the next generation of video game consoles start coming to market…. in a couple years or more.

Jon C. Ogg
November 8, 2007

Jon Ogg produces the Special Situation Investing Newsletter; he does not own securities in the companies he covers.

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