GameStop Clearly Impacted By Increased Digital Software Sales, Says Piper Jaffray

Shares of GameStop Corp. (NYSE: GME) were trading down roughly 3.7 percent on Friday afternoon following the announcement of the company’s first-quarter financial results and second-quarter guidance. EPS of $0.66 beat estimates by $0.05, while revenue of $1.97 was in line with expectations; however, management guided for a 4 to 7 percent decline in comps over the second quarter and EPS of $0.23 to $0.30, below the Street’s $0.31 consensus.

Following the earnings report, Piper Jaffray analysts Michael J. Olson and Yung Kim reiterated an Overweight rating and $41 price target on shares of the omnichannel video game retailer. So, let’s take a look at their comments.

Related Link: Pacific Crest Says "Difficult To Recommend" GameStop Following Q1 Earnings; Stock Slumps 6%

As per the research note, the strong first quarter results were a results, among other things, of robust sales of Ubisoft’s 'The Division' “and non-core related revenue streams (mobile & CE, collectibles, etc.), offset by below consensus revenue for New Hardware (-29 percent y/y).”

While the company did not buy back stock over the first quarter, management said it expects to repurchase a large amount ($75 to $125 million in stock) before the end of the year. “The console cycle continues to have a strong trajectory with >40 percent faster uptake of new gen consoles vs. the first 10 quarters of the prior cycle, which is positive for GameStop and the publishers,” the analysts added. However, GameStop is clearly feeling the impact of surging digital software sales, they concluded.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.