Showdown at E3: Part I -- Battle of the Consoles

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The first day of the much anticipated E3 expo was less of a cordial professional showcase of the future in video games, and more of the first head-to-head battle between Sony (NYSE: SNE) and Microsoft (NASDAQ: MSFT) over the new consoles since their announcements last month. Stated in my last post on the console wars, both were advertising cutting-edge computing power and amazing graphics, not to mention its other add-ons like TV and movie streaming that serve as an attempt to expand beyond the hardcore gamers. Here, though, despite Microsoft’s Xbox One being shown first, Sony counterattacked in a big way, and landed punches that have sent Microsoft reeling.

PS4 Affordability is Sony’s Left Hook….

By most accounts, Sony was E3’s big winner on Day 1. Not only did they release the new PS4, which looks like a hybrid between the Xbox One and the PS2 in a good way, but they crafted their presentation to establish differences between themselves and Microsoft. While Microsoft announced on June 10 that their new console would cost $499, Sony came out the next day and announced that it would be $100 less than the Xbox One. Given Sony’s advantages in computing power, as well as a devoted gamer base, this gives Sony an instant leg-up over its competition.

...and a Right Upper Cut with Game Sharing

Another big win for Sony was announcing that the new system would be open to used games, as well as announcing an expansive library of PS3 games available on Sony’s cloud software. By emphasizing the ease of sharing games, and the fact that it is free to do so, Sony has hit at another difference between the two giants. Microsoft developers had stated that used games could be played on the Xbox One, but only if a fee was paid, and the user was frequently on Xbox Live. This has irked a lot of gamers because it makes the cost of playing the newest titles more expensive, in addition to limiting backwards compatibility for Xbox 360 games.

Microsoft Bloodied As Sony Takes the Round

By emphasizing consumer demands first and waiting to show off the PS4 until E3, when the eyes of the gamer universe would be focused on them, Sony delivered two big blows to Microsoft and established the PS4 as the premiere console of the next generation, casting doubts regarding the appeal of the Xbox One to gamers, given the price and technology differences. The PS4 comes out of this as a cheaper and more user-friendly console, a big plus for Sony, and puts Microsoft on the defensive for the rest of the convention, if not the rest of the summer.

Sony Saves Trade-In Market

Sony’s announcement of used game compatibility also plays into GameStop’s (NYSE: GME) consumer base. With over 6,600 stores in 15 countries, Gamestop is one of the biggest sellers of used games in the business. This is because Gamestop has a system where customers can trade in used games to earn credits towards new ones, which helps bring down the rather high costs of the newest games and sequels to popular franchises like Call of Duty, Assassin’s Creed, and Battlefield. In addition, GameStop traditionally takes advantages of big launch dates, and the announcement that these two consoles will be coming out before Thanksgiving means that the company will be able to get a slice of the lucrative Black Friday electronics shopping binge, which will no doubt help the company’s profit margins as well as give them a sustained period of growth into 2014 and beyond.

Sony, GameStop Win Big

Sony and GameStop came out of Day 1 of E3 as the big winners. Sony’s near perfect announcement of the PS4, as well as the numerous advantages it has over Microsoft’s Xbox One, could make life difficult for Microsoft going forward. This also gives Sony a big shot in the arm in regards to getting the company back to its strong suit, which is electronics, and an impressive E3 showing should make investors and gamers incredibly happy.

GameStop also has its business model secured for the next generation, as the used game market will still be very vibrant thanks to the new PS4, and trade-ins will remain relevant. It’s also a fairly cheap buy with a forward P/E of 10.28 and operating margins of around 7%. It is still in the red in regards to profit margin, but the future looks bright for GameStop going forward.

Sony isn’t too bad either, with a forward P/E of 15.31, though its operating margins are a nerve-wracking 0.64%, with a profit margin of 0.61%. It may not seem like a hot investment, but the PS4 has great potential, and is worth investing in for the long haul.

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John McKenna has no position in any stocks mentioned. The Motley Fool owns shares of GameStop and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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