GameStop: Janney Downgrades; September Video Game Sales Disappoint; Shrs Fall

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GameStop (GME) shares are losing ground this morning on continued weakness in the video game software sector.

After the close yesterday, market research firm NPD Group reported that September U.S. video game sector revenue inched up 1% in September on a year-over-year basis, snapping a string of six months with year-over-year declines, including a 5% rise in software sales, offset by a 6% drop in hardware revenue.

That was better than recent months, but not as good as expected. Piper Jaffray analyst Anthony Gikas notes that the average Street forecast was for an 18% rise in software sales for the month. He notes that the fall in hardware revenue came despite price cuts on all three major game consoles - the Sony Playstation 3, the Nintendo Wii and the Microsoft Xbox 360.

Janney Montgomery Scott Tony Wible this morning cut his rating on GameStop to Neutral from Buy, with a new price target of $28, a smidge below yesterday’s close. Wible says the weak software sales - he had expected 12.9% year-over-year growth in September - “leads us to be more concerned about the health of the gaming cycle and GME’s need to discount used product to compensate for the lack of new product foot traffic.” He says the company now appears to be on pace for a 4% decline in Q3 sales, down from a previously estimated 3.1% increase.

For the January 2010 fiscal year, he cut his EPS estimate to $2.38, from $2.57; for January 2011, he goes to $2.51, from $2.84.

GME today is down $1.56, or 5.5%, to $26.60.

Among the other players in the video game sector:

• Electronic Arts (ERTS) is down 77 cents, or 3.7%, to $20.06.


• Activision (ATVI) is down 8 cents, or 0.6%, to $12.45.


• Take-Two (TTWO) is up 3 cents, or 0.3%, to $11.24.


• THQ (THQI)gm is down 10 cents, or 1.7%, to $5.77.