GameStop (GME) Sees the Death of 'The GME Killer', Shares Rise

August 20, 2012 3:03 PM EDT
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Price: $23.58 +1.16%

Rating Summary:
    12 Buy, 10 Hold, 3 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 30 | Down: 30 | New: 23
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With every secular trend seemingly going against GameStop (NYSE: GME) it is few and far between lately that a ray of sunshine would come their way. But that's just what happened over the weekend.

Supposed 'GME Killer' OnLive rapidly imploded over the weekend, noted analysts at Janney Capital. After reports surfaced Friday that OnLive would be closing operations, firing staff, and filing for bankruptcy by the day's end, the company ended up being sold to Lauder Partners, one of the original VC backers. "The founder, Steve Perlman, commented that the failure was ultimately tied to an inability to achieve scale and noted OnLive only has 1,600 users," analyst Tony Wible notes.

The analyst said the fact that OnLive only managed to attract 1,600 users over three years helps validate their view that gamers prefer packaged media as it: 1) is portable; 2) retains trade in value; and 3) is a cost effective means to the manage massive data files (10 to 30 GB for current gen games). These issues will be more important as broadband shifts to usage based billing.

"We believe Zynga's (Nasdaq: ZNGA) difficulties, the sale of Gaikai, and the failure of OnLive show that digital alternatives to packaged media are not thriving," Wible notes.

Janney increased 2012 and 2013 estimates to $3.15 and $3.45, respectively, on GameStop and maintain their Buy rating and Fair Value at $27.

For an analyst ratings summary and ratings history on GameStop click here. For more ratings news on GameStop click here.

Shares of GameStop are up 5 percent to $19.50.

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