Financial expert predicts bleak future for GAME

Financial firm Goldman Sachs has issued a damning report on the future of GAME Group.

The company’s Rachel Carson has downgraded GAME from Neutral to Sell. She says the firm’s decision to move further online and into digital is ‘late in the evolution of the industry’ and will therefore be costly.

She adds that digital downloads is a threat to the firm’s used and new business, and believes that GAME will close 105 stores, up from the currently planned 85 outlets.

The lengthy report seen by MCV predicts that there will not be a new hardware launch until 2013, and that these new consoles will be focused on digital over retail. Carson says GAME are ‘under represented’ in digital and ‘may struggle to grow traction in this area rapidly enough’.

Carson wrote: "We downgrade Game Group to Sell from Neutral. In our view, the group’s direct competition in online pricing is causing gross margin erosion, while we view the strategy to improve store content, layout and staffing as negative to profitability in the near term.

"Longer term, we expect the rate of increase in digital downloads direct from publishers to be a threat to mint software sales, the pre-owned market and Game’s movement to gain market share in digital content.

"We have updated our forecasts for Game Group to reflect the rapidly evolving structure of the video game market, the medium and longer term challenges of the industry, and Game Group’s recent strategy day," she continued.

"We view the group’s move to increase online and digital revenues as late in the evolution of the industry and the additional cost of competing on price with online retailers and improving the in store experience as weighing on group margins in the medium term.

"We estimate the next major console cycle to be in no earlier than 2013/14 and the benefits are reflected in our forecasts, recognising Game’s positioning in the hardware market, but reflecting our view that there will be little benefit to software sales as new consoles are likely to be digital, an area in which the group still has low market share."

Carson also doesn’t see GAME as an attractive acquisition, nor does she expect GAME to make any purchases of its own.

Despite the bleak outlook, Goldman Sachs admits that a new hardware launch before 2013 and a better online performance for GAME could change its estimations.

The report follows GAME’s strategy update in February.

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