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Analyst: Casual Audience Helps GameStop Weather Downloads, Economy

Following a visit to the retailer's headquarters, Lazard's Colin Sebastian has said GameStop should remain sheltered from any forthcoming economic downturn, adding that new casual gaming audiences will remain the company's focus in 2008, and that digital
Following a visit to the retailer's headquarters, Lazard's Colin Sebastian has said GameStop should remain sheltered from any forthcoming economic downturn, adding that new casual gaming audiences will remain the company's focus in 2008, and that digital downloads have yet to directly threaten the company. "Overall, our meeting was very upbeat as the company enters 2008 on a strong footing with multiple earnings growth drivers ahead," said Sebastian, adding that "a robust lineup of new title releases, stable software pricing, healthy TIE ratios, and a significantly larger installed base of console and handheld hardware" will all contribute to a healthy year for the retailer. While the overall economy may be heading into a downturn, Sebastian reports that "management believes its stores are in comparatively good shape to weather economic downturns, given the dynamics of a video game market still in cyclical upswing and the appeal of used products for value conscious consumers." A broadening customer base and overseas and local growth, with the company planning 500 new store openings annually over the next 3-4 years, are also fueling executive confidence. "Management believes the company is in a strong competitive position in a number of European markets, including Italy, Germany, Scandinavia, Spain, Portugal, and Ireland," said Sebastian. Finally, Sebastian concludes that "digital distribution a longer-term threat" despite recent news of EA's new free to play Battlefield Heroes. "In the near and medium terms," he says, "we believe that traditional retail sales will remain an important distribution channel due to the large and increasing file sizes of video games and the seasonal and hit-driven nature of the business, which will require tremendous peak period capacity for downloads."

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