GameStop Likes the PS4 More Than the Xbox One?

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The shareholders of GameStop (NYSE: GME), the world’s largest multi-channel retailer of video games, are happy with Sony’s (NYSE: SNE) PlayStation 4 (PS4). While GameStop has started taking pre-orders on Sony’s PlayStation 4 and Microsoft's (NASDAQ: MSFT) next generation entertainment system, the Xbox One, it is the PS4’s strategy which has no new restrictions on pre-owned titles that relieves GameStop shareholders’ concerns for now.

Xbox One versus PS4

While both the PS4 and the Xbox One are expected to be launched in November 2013, the two consoles are taking very different approaches on Internet connection and game policies. Xbox One integrates and provides functions ranging from entertainment and TV to communication, such as Skype. At $499, the new Xbox One system comes with a new generation of Xbox Live and a redesigned 1080p Kinect, whereas Microsoft is imposing more restrictive policies on lending and reselling the Xbox One games. Furthermore, an internet connection is required at least once every 24 hours. Microsoft’s aggressive shift toward an online ecosystem continues to pose threats for GameStop’s game resale business.

PS4, on the other hand, is selling at $399 ($100 cheaper than Xbox One). PS4 features innovative second-screen features and offers an expansive gaming ecosystem through the PlayStation Network cloud technology. Sony’s motion sensor, the PS4 Eye Camera, can be purchased for an additional $59. Unlike Microsoft’s restrictive policy, the PS4 will allow gamers to trade, sell, and keep games that are based on discs from the previous consoles.

PS4 does not require disc-based games to connect online to work, and Sony basically won’t impose any new restriction on pre-owned titles. It is Sony’s decision that eased GameStop shareholders’ concern on pre-owned games for now. While used video game products contributed 27% toward GameStop’s revenue in 2012, it accounted for 44% of the gross profit. Resale margins are more than double those of new video game products.

Pre-order numbers

The demand for the PS4 has been high, whereas the launch edition pre-orders are sold out already on Amazon. As of June 14, 2013, the Xbox One’s pre-orders were lagging behind the PS4. The PS4 has now doubled Xbox One sales, whereas for every Xbox One unit that has been pre-ordered, two PS4's have been pre-ordered. Based on the pre-order numbers, players seem to favor Sony’s offerings and its open policy on disc-based games more than Microsoft’s aggressive move toward an online ecosystem.

Sony even raised its internal sales forecast due to positive signs about demand for the device. Sony also pointed out that demand may well outstrip supply. Amazon and GameStop are already warning customers that they cannot guarantee shipment of the units on the promised release date.

What now?

With the latest pre-order numbers, the PS4 seems to be taking over the battle against the Xbox One for now. However, the real test is yet to begin as users have been shifting toward mobile gaming, where many people now play games on their mobile devices, such as smartphones and tablets.

On the other hand, GameStop is clearly a near-term winner as it will benefit from strong pre-order numbers from both the PS4 and the Xbox One. GameStop will also benefit more if the PS4 continues to outsell the Xbox One as Sony is taking an open policy toward used games. However, in the long-term, the success of GameStop will depend on how it can adapt to the online ecosystem as well as the mobile trends.

Bottom line

With the launch and strong pre-orders of the PS4 and Xbox One, GameStop, Sony, and Microsoft will continue to capture investors’ attentions in the near-term. However, in the long-term, Sony and Microsoft will have to continue adapting to the online and mobile environment, whereas GameStop needs a new revenue model to penetrate into the online ecosystem.

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Nick Chiu 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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