GameStop Holiday Sales Are Still Good for Sony and Microsoft

In a sign of knee-jerk bearishness, traders continued to dump GameStop Corp. (NYSE: GME) shares after a 9.7% decline in new software sales seemed to overrun every other piece of good news in the company’s holiday sales press release. Total sales were up 1.9% and nearly 6% in constant currency. Comparable store sales were up 4.4%, new hardware was up 4.5% and over 9% in constant currency, driven by successful promotions for Sony Corp.’s (NYSE: SNE) PlayStation 4 and Microsoft Corp’s (NASDAQ: MSFT) Xbox One. GameStop shares are now down 7.5% since the press release.

Buried in the release though is the fact that the 9.7% new software sales decline that investors soured on was due to fewer Nintendo games available and a decline in prior generation games. All this really means is that gamers are turning away from older systems and embracing the PlayStation 4 and Xbox One. This is obvious given that combined new software sales for the two systems were up 38% compared to the previous holiday period.

So while investors are taking out their frustrations over one lackluster number on GameStop, the news still looks good for Microsoft’s and Sony’s gaming businesses. Xbox sales accounted for just under 10% of Microsoft’s annual revenues last year, with video gaming coming in as the company’s fourth largest segment. Given Microsoft’s size though, the good news shouldn’t have too deep an impact on the bottom line.

It’s a different story with Sony however, because gaming is Sony’s second biggest segment and the fastest growing one, too. Microsoft is also 14 and a half times the size of Sony, meaning good PlayStation sales will have a much more magnified effect on Sony’s bottom line for that reason as well.
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The other encouraging read out of GameStop’s holiday report comes between the lines. Gaming industry analysts have worried about the effect of mobile gaming encroaching on console gaming sales. The strong growth in GameStop’s Xbox One and PlayStation 4 sales further dispels that fear. Gamers don’t seem to be using mobile gaming platforms at the expense of consoles and look quite happy to use both.

Overall, it looks like traders are taking advantage of any excuse to sell here as a wave of bearishness flows through Wall Street. GameStop’s one minor decline in new software sales in the face of otherwise positive numbers would be ignored in a more bullish environment, which means that when current negative sentiment reverses, GameStop shares should quickly recoup their losses. As for Sony and Microsoft, the GameStop numbers look especially good for Sony, and they aren’t half bad for Microsoft either.