PJC Survey Tests Hypothesis Around Digital Download Behavior During Next Cycle

Transcription

1 (GME) PJC Survey Tests Hypothesis Around Digital Download Behavior During Next Cycle Overweight CONCLUSION The rate of full game downloads during the next gen cycle represents a key debate around GME given 40% of gross profits are derived from physical used sales. The hypothesis that full game downloads are unlikely to hit an inflection point during the next cycle should be tested. We recently surveyed 70 gamers buying a new PS4 or Xbox One with questions about digital download behavior. Not surprisingly, survey results implied a shift toward more digital downloading during the next cycle (from 13% of purchases on avg. to 31%). However, it was the subsequent discussion around the perceived value of physical discs that caught our attention and will ultimately work to slow that shift. Our survey results, therefore, leave us confident in the view that physical will continue to be the most popular delivery mechanism during the next cycle. Reit OW on GME. Digital download rate moving higher, but perceived value of physical remains high. Our sample set said they digitally downloaded an avg. of 13% of their console games during the past 12 months on legacy gen systems (i.e. Xbox 360 and PS3). During the next 12 months, our sample expects to download 31% of their console games digitally (on next gen consoles). While the shift from 13% to 31% is significant, we think this number may be exaggerated as many of our respondents included the downloading of indie games, which we would separate for the purposes of this discussion. We also think survey respondents may have felt obligated to answer with high adoption rates, and thus answers may misrepresent the sample's "true" rate of downloads. Finally, our respondents were early console adopters who we suspect are likely to download more games digitally compared to the larger population. Trade-in value & time to download cited as primary reasons to keep buying physical disks. When asked why they don't download more games, 20% of respondents cited the ability to trade-in physical discs, while another 20% said that the excessive time to download large files was a major deterrent. Many next gen games are now over 30GB vs. comparable titles on the prior gen consoles near 8GB. For example, NBA 2K14 is 40GB on PS4, while it was under 10GB on PS3 (i.e. 45 min vs. 3 hrs of download time). Gamers also cited the ability to lend to friends as a major reason for sticking with physical. Net net, gamers continue to assign value to the benefits of physical discs. Conclusion. We believe our survey results confirm the hypothesis that GameStop has little to worry about in the next several years regarding a massive shift to full game downloads. With GME shares down >10% in the last week and our belief that the company is well positioned to benefit from new hardware sales immediately, preowned sales over the next several quarters and new software sales as the installed base of next gen consoles grows in 2014, we would encourage investors to buy on weakness. RISKS TO ACHIEVEMENT OF PRICE TARGET Digital disintermediation, shift to mobile and tablet games, retail competition. COMPANY DESCRIPTION is a leading video game hardware and software specialty retailer. PRICE: US$49.86 TARGET: US$ x CY14E EPS of $4.05 Michael J. Olson Sr Research Analyst, Piper Jaffray & Co , michael.j.olson@pjc.com Andrew D. Connor Research Analyst, Piper Jaffray & Co , andrew.d.connor@pjc.com Changes Previous Current Rating Overweight Price Tgt US$61.00 FY13E Rev (mil) US$9,116.0 FY14E Rev (mil) US$9,730.0 FY13E EPS US$3.19 FY14E EPS US$ Week High / Low US$57.74 / US$22.30 Shares Out (mil) Market Cap. (mil) US$5,928.4 Avg Daily Vol (000) 2,207 Book Value/Share US$18.06 Net Cash Per Share US$5.46 Debt to Total Capital 0% Div (ann) US$1.10 Yield 2.21% Fiscal Year End Jan Price Performance - 1 Year USD Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Source: Bloomberg YEAR 2012A 2013E 2014E REVENUE (US$ m) Apr Jul Oct Jan FY CY FY RM CY RM 2, , , , , , x 0.7x 1,865.0A 1,384.0A 2,107.0A 3, , , x 0.7x 2, , , , , , x 0.6x EARNINGS PER SHARE (US$) Apr Jul Oct Jan FY CY FY P/E CY P/E x 15.7x 0.46A 0.09A 0.58A x 15.6x x 12.3x Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions. This report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst certification, found on pages 8-9 of this report or at the following site: Page 1 of 9

2 Respondent Console(s) owned last cyle? Last year, % of games downloaded directly on that console? 0, 10, 25, 50, 75 Next year, % of games expect to download on this new console? 0, 10, 25, 50, 75? What stops you from downloading more? Game/accessory today Speed, trade-in, friends (pick one)? lending, other 1 x 0 25 Trade in FIFA 2 x 0 10 Hard drive space Controller 3 x 0 0 Trade in na 4 na 0 0 Speed na 5 x,p 0 0 other CoD 6 p 0 0 Trade in na 7 x,p Trade in na 8 x 0 10 Portability of disc FIFA 9 x 0 0 Trade in Controller 10 p Price AC4 11 p Other Camera 12 p Other Killzone 13 p,w Speed Controller 14 p,x Trade in NBA 2K14 15 x,p Friends AC4 16 p Other AC4 17 X Other Controller 18 p,x Speed Need for Speed 19 x,p,w 0 25 Other AC4 20 x,p,w 0 10 Other Controller 21 p,x Trade in Controller 22 x,p,w Trade in Killzone 23 p Speed Controller 24 p,x,w Trade in Head 25 p,x,w Other AC4 26 p,w 0 10 Other CoD 27 x,w 0 25 Friends AC4 28 p Friends Killzone 29 na na 25 Friends Controller 30 x,p Speed camera 31 x,p Speed FIFA 32 x,p 0 10 Trade in Dead Rising 33 x,p 0 10 Trade in Controller 34 x,p Trade in AC4 35 x 0 50 Other AC4 36 x,p 0 0 O Controller 37 p SPEED Controller 38 p,x,w 0 0 O N 39 na 0 0 O N 40 x Speed BF4 41 x Other BF4 42 x Other CoD Note: results continue on next page Source: PJC Research Page 2 of 9

3 Respondent Console(s) owned last cyle? Last year, % of games downloaded directly on that console? 0, 10, 25, 50, 75 Next year, % of games expect to download on this new console? 0, 10, 25, 50, 75? What stops you from downloading more? Game/accessory today Speed, trade-in, friends (pick one)? lending, other 43 x Other CoD 44 x 0 25 Speed na 45 x Other BF4 46 x Other CoD 47 x Other CoD 48 x Other BF4 49 x Speed BF4 50 w, x na na na na 51 x Other CoD 52 x Other CoD 53 x Speed CoD 54 x Other CoD 55 x Other BF4 56 w na na na na 57 w na na na na 58 x 0 25 Speed na 59 x Other BF4 60 x Other CoD 61 x Other na 62 x Trade in CoD 63 x Other BF4 64 x Speed BF4 65 x Speed CoD 66 x Other BF4 67 x Trade in na 68 x Other CoD 69 x Other CoD 70 p,w, x 0 10 Other camera Average Average Trade in CoD % 21% Speed BF4 20.0% 14% Other Assassin's Creed 60% 11% Controller 16% Camera 4% Source: PJC Research Page 3 of 9

4 Piper Jaffray Mike Olson: Andrew Connor: GameStop (GME) Consolidated Income Statement 11/21/13 ($ in millions except per share data) FY 2012 FY 2013E FY 2014E Apr-12 Jul-12 Oct-12 Jan Apr-13 Jul-13 Oct-13 Jan-14E 2013E Apr-14E Jul-14E Oct-14E Jan-15E 2014E 2015E Same-Store-Sales Growth % 1.1% -2.1% -12.5% -9.3% -8.3% -4.6% -8.0% -6.7% -10.7% 20.5% 6.0% 3.2% 11.9% 16.1% -9.0% 9.1% 6.6% 2.9% Revenue $9,474 $9,551 $2,002 $1,550 $1,773 $3,562 $8,887 $1,865 $1,384 $2,107 $3,760 $9,116 $2,090 $1,609 $1,921 $4,110 $9,730 $10,033 COGS 6, , , , , , , , , , , , , , , , ,292.2 GAAP Gross Profit $2,538 $2,680 $599.9 $519.3 $557.4 $974.9 $2,652 $578.3 $481.4 $598.4 $956.4 $2,614 $597 $489 $549 $1,058 $2,693 $2,741 SG&A 1, , , , , ,771.0 Depreciation and amortization Op Ex 1, , , , , ,943.5 GAAP Operating Income EBITDA Interest (expense) inc. - net (35.3) (20.7) (0.4) (0.9) (1.0) (1.0) (3.3) (0.9) (1.3) (0.7) (1.1) (4.0) (1.7) (1.5) (1.3) (1.3) (5.8) (5.8) Other non-recurring income (6.0) Other expense - net Adj. Inc. (loss) before taxes Income tax expense Net loss on noncontrolling interests Net income (loss) Diluted EPS (GAAP) $2.65 $2.87 $0.54 $0.16 $0.38 $2.16 $3.17 $0.46 $0.09 $0.58 $2.10 $3.19 $0.69 $0.13 $0.44 $2.83 $4.05 $4.53 Basic shares outstanding Diluted shares outstanding Yr/Yr Growth: Net sales 4.4% 0.8% -12.2% -11.1% -8.9% -0.5% -7.0% -6.8% -10.7% 18.8% 5.6% 2.6% 12.0% 16.3% -8.8% 9.3% 6.7% 3.1% Operating income 4.0% -14.0% -12.3% -35.6% -8.8% 36.3% 11.8% -24.2% -45.5% 44.9% -5.6% -5.1% 49.6% 35.9% -25.0% 31.1% 23.8% 6.5% Net Income 8.2% -0.7% -9.8% -32.0% -12.4% 9.5% -0.5% -24.7% -50.0% 45.3% -6.8% -6.1% 48.6% 44.3% -26.0% 31.1% 23.7% 6.6% EPS as a % of Full Year 17.0% 5.1% 12.1% 68.1% 14.3% 2.8% 18.1% 65.8% 17.1% 3.2% 10.9% 69.7% Diluted EPS 17.9% 8.4% -3.9% -25.1% -1.0% 24.5% 10.4% -15.0% -45.8% 50.1% -2.7% 0.7% 51.3% 48.3% -23.3% 34.6% 27.0% 11.7% Margins: Gross Margins 26.8% 28.1% 30.0% 33.5% 31.4% 27.4% 29.8% 31.0% 34.8% 28.4% 25.4% 28.7% 28.6% 30.4% 28.6% 25.7% 27.7% 27.3% EBITDA Margins 8.8% 7.9% 8.0% 5.1% 6.7% 12.8% 9.2% 6.9% 4.3% 7.1% 11.5% 8.4% 8.2% 4.2% 6.4% 13.5% 9.4% 9.7% Operating Margins 7.0% 6.0% 5.7% 2.2% 4.2% 11.6% 7.2% 4.7% 1.4% 5.2% 10.4% 6.6% 6.2% 1.6% 4.3% 12.4% 7.7% 7.9% Net Margins 4.3% 4.2% 3.6% 1.4% 2.7% 7.4% 4.5% 2.9% 0.8% 3.3% 6.5% 4.1% 3.9% 0.9% 2.6% 7.8% 4.8% 5.0% % of Sales: Cost of Goods Sold 73.2% 71.9% 70.0% 66.5% 68.6% 72.6% 70.2% 69.0% 65.2% 71.6% 74.6% 71.3% 71.4% 69.6% 71.4% 74.3% 72.3% 72.7% Rental Expense as a % of Sales 4.0% 4.2% 4.5% 5.9% 5.3% 3.3% 4.4% 4.9% 6.6% 4.5% 3.1% 4.3% 4.4% 5.7% 4.9% 2.9% 4.1% 3.9% Selling, general and administrative 17.9% 20.1% 22.0% 28.4% 24.7% 14.6% 20.7% 24.1% 30.5% 21.3% 14.0% 20.2% 20.3% 26.2% 22.1% 12.3% 18.3% 17.7% Depr and amort as % of assets 1.8% 12.4% 3.0% 2.9% 2.9% 2.8% 11.3% 2.7% 2.6% 2.6% 2.5% 9.8% 2.4% 2.4% 2.4% 2.3% 9.1% 8.6% Gross PPE (from Bal sheet) 1, ,501 1,502 1,506 1,518 1,555 1,555 1,556 1,557 1,557 1,684 1,684 1,719 1,746 1,779 1,845 1,845 2,014 Total operating expenses 19.8% 22.1% 24.2% 31.3% 27.2% 15.8% 22.7% 26.3% 33.4% 23.2% 15.1% 22.1% 22.3% 28.8% 24.3% 13.3% 20.0% 19.4% Tax rate 34.5% 26.5% 36.8% 37.5% 36.5% 36.2% 36.4% 36.7% 40.0% 36.7% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% Current disclosure information for this company is located at: Page 4 of 9

5 GameStop, Inc. (GME) Piper Jaffray Mike Olson: GameStop (GME) ($ in millions except per share data) FY 2012 FY 2013 FY /21/ Apr-12 Jul-12 Oct-12 Jan Apr-13 Jul-13 Oct-13 Jan-14E 2013E Apr-14E Jul-14E Oct-14E Jan-15E 2014E 2015E Current assets: Cash and cash equivalents ,091 1,091 1,353 Accounts receivable: trade and vendo Merchandise inventories 1,258 1,138 1, ,646 1,171 1,171 1,112 1,004 1,717 1,121 1,121 1,157 1,018 1,715 1,221 1,221 1,256 Prepaid expenses Deferred tax asset Total current assets 2,155 1,997 1,636 1,379 2,252 2,011 2,011 1,562 1,465 2,635 2,293 2,293 1,837 1,597 2,867 2,558 2,558 2,861 Long-term assets Building & leasehold improvements Fixtures and equipment Total 1,395 1,501 1,502 1,506 1,518 1,555 1,555 1,556 1,554 1,578 1,647 1,647 1,683 1,712 1,746 1,812 1,812 1,982 Accumulated depreciation and amor ,030 1,030 1,055 1,075 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 Net property and equipment Goodwill and other intangible assets 1,996 2,019 2,021 1,982 1,378 1,383 1,383 1,378 1,365 1,371 1,371 1,371 1,371 1,371 1,371 1,371 1,371 1,371 Deferred tax asset Other noncurrent assets Total long-term assets 2,885 2,850 2,823 2,752 2,097 2,123 2,123 2,083 2,046 2,108 2,176 2,176 2,212 2,241 2,275 2,341 2,341 2,512 Total assets 5,040 4,847 4,459 4,132 4,349 4,134 4,134 3,645 3,510 4,742 4,469 4,469 4,049 3,838 5,142 4,900 4,900 5, Current liabilities: Accounts payable 1, , , ,519 1,040 1,040 1,070 Accrued expenses Income taxes & notes payable Total current liabilities 1,748 1,634 1,319 1,183 2,101 1,715 1,715 1,236 1,250 2,493 1,946 1,946 1,571 1,451 2,510 2,031 2,031 2,061 Long-term liabilities Notes payable Deferred taxes Deferred rent and other long-term liab Total long-term liabilities Total liabilities 2,168 1,807 1,482 1,343 2,252 1,847 1,847 1,349 1,354 2,595 2,048 2,048 1,673 1,553 2,612 2,133 2,133 2,163 Stockholders' equity: Preferred stock Common stock Additional paid in capital Accumulated other comp loss (other) Retained earnings 1,806 2,144 2,198 2,199 1,543 1,774 1, Total stockholders' equity 2,872 3,040 2,977 2,789 2,098 2,286 2,286 2,296 2,157 2,147 2,421 2,421 2,376 2,285 2,530 2,767 2,767 3,210 Total GameStop liabilities and stockholders' equ 5,040 4,847 4,459 4,132 4,349 4,134 4,134 3,645 3,510 4,742 4,469 4,469 4,049 3,838 5,142 4,900 4,900 GME.xls 5,373 Page 5 of 9

6 GameStop, Inc. (GME) Piper Jaffray Mike Olson: GameStop (GME) ($ in millions except per share data) 11/21/13 FY 2012 FY 2013E FY 2014E Cash Flow from Operating Activities Apr-12 Jul-12 Oct-12 Jan Apr-13 Jul-13 Oct-13 Jan-14E 2013E Apr-14E Jul-14E Oct-14E Jan-15E 2014E 2015E Net income (loss) (417.7) (269.8) Adjustments to reconcile net income: Depreciation of property and equipment Amortization & other assets (0.3) (0.3) (0.3) (0.6) (0.3) (0.3) (0.3) (0.3) (1.2) (1.2) Stock based compensation expense Deferred taxes 19.6 (26.6) 0.7 (4.5) (7.6) (46.8) (58.2) 3.6 (2.6) (7.6) (15.0) (21.6) 0.7 (4.5) (7.6) (15.0) (26.4) (26.4) Loss on disposal of property and equipment (6.0) (1.3) 3.5 (0.1) (0.1) (0.1) 3.2 (0.1) (0.1) (0.1) (0.1) (0.4) (0.4) Deferred rent and other LT liabilities (7.2) 3.8 (5.9) (0.8) (2.8) (16.1) (8.8) (8.8) (8.8) (42.5) (8.8) (8.8) (8.8) (8.8) (35.2) (35.2) Provision for inventory reserves Asset impairments and restructuring charges Landlord liability for tenant allowances, net Change in the value of FX contracts Decrease (increase) in assets Accounts receivable (8.8) (22.8) (8.1) (32.9) (8.7) (15.1) (5.8) (1.7) Merchandise inventories (227.2) (652.2) (63.8) (450.0) (75.0) (425.0) Prepaid expenses and other (10.5) (3.3) (5.1) (15.8) (23.1) (8.7) (20.5) 1.6 (10.5) (3.0) Prepaid taxes (70.8) (74.4) (103.6) (49.3) - - (152.9) Increase (decrease) in liabilities: Accounts payable and accrued liabilities (104.5) (240.9) (109.4) (506.8) 48.1 (358.7) (30.6) 1,050.0 (550.0) (400.0) (120.0) 1,050.0 (475.0) Net Cash from Operating Activities (162.2) (11.6) (331.4) (328.9) Cash Flow from Investing - Net additions to property and equipment (197.6) (165.1) (22.3) (31.3) (35.3) (50.7) (139.6) (24.3) (23.0) (33.7) (63.9) (144.9) (31.4) (24.1) (28.8) (61.7) (146.0) (150.5) Net Cash Flow from Investing Activity (240.1) (201.6) (22.1) (35.1) (34.7) (60.8) (152.7) (23.5) (22.4) (33.7) (63.9) (143.5) (31.4) (24.1) (28.8) (61.7) (146.0) (150.5) - Cash Flows from Financing Activities: - Repurchase of notes payable (200.0) (250.0) Repayment of debt (80.0) - - (80.0) Borrowing on revolver Share repurchases (381.2) (262.1) (121.6) (125.0) (81.6) (81.2) (409.4) (25.5) (88.9) (45.0) (25.0) (184.4) (75.0) (75.0) (75.0) (75.0) (300.0) (302.5) Dividends paid (20.5) (19.8) (31.1) (30.6) (102.0) (33.0) (33.2) (29.7) (29.1) (125.0) (31.7) (31.3) (31.0) (30.6) (124.6) (127.7) Issuance of share related to a public offering Issuance of shares relating to stock options Tax benefits from exercise of stock comp Net increase in other (3.8) Cash Flow from Financing Activities (555.6) (492.6) (140.9) (144.0) (110.5) (103.1) (498.5) (31.8) (56.4) (74.7) (54.1) (217.0) (106.7) (106.3) (106.0) (105.6) (424.6) (430.2) - - Effect of exchange rates on cash and cash equiva (0.7) 0.3 (4.6) (3.4) (24.2) Increase (decrease) in cash and cash equivalents (194.6) (55.8) (325.9) (190.4) (18.8) (390.1) (46.2) (466.9) (99.5) Cash and cash equivalents - beginning of period ,091.2 Cash and cash equivalents - end of period , , ,353.9 GameStop GME.xls Page 6 of 9

7 GameStop, Inc. (GME) Piper Jaffray Mike Olson: GameStop (GME) FY 2012 FY 2013E FY 2014E 11/21/ Apr-12 Jul-12 Oct-12 Jan Apr-13 Jul-13 Oct-13 Jan-14E 2013E Apr-14E Jul-14E Oct-14E Jan-15E 2014E 2015E COMPS Comp store count 5,923 6,470 6,290 COMPS 6,439 6,492 6,318 5,752 5,890 COMPS 5,855 5,839 5,799 5,799 5,754 COMPS 5,709 5,668 5,623 5,936 5,188 Non-comp store count Total Stores 6,670 6,693 6,614 6,628 6,650 6,602 6,602 6,544 6,505 6,488 6,443 6,443 6,393 6,343 6,298 6,248 6,248 6,038 Y/Y sales growth due to non-comp stores 4.5% 1.9% 1.5% 1.5% 1.0% 4.9% 2.8% -0.2% -0.1% -2.2% -0.5% -0.8% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% Avg sales per non-comp store Non-comparable store productivity 73% 150% 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% Non-comp store contribution 3.3% 1.4% 1.1% 1.1% 0.7% 3.7% 1.9% -0.1% 0.0% -1.7% -0.4% -0.6% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% FX contribution to total sales growth 0.0% 1.5% -0.9% -2.9% -1.4% 0.4% -0.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Comp Sales Growth Y/Y (reported) 1.1% -2.1% -12.5% -9.3% -8.3% -4.6% -8.0% -6.7% -10.7% 20.5% 6.0% 3.2% 11.9% 16.1% -9.0% 9.1% 6.6% 2.9% Total Sales Growth 4.4% 0.8% -12.2% -11.1% -8.9% -0.5% -7.0% -6.8% -10.7% 18.8% 5.6% 2.6% 12.0% 16.3% -8.8% 9.3% 6.7% 3.1% CATEGORY SALES DATA ($ mils) TRUE CATEGORY SALES DATA ($ mils) CATEGORY SALES DATA ($ mils) CATEGORY SALES DATA ($ mils) New Hardware Sales $1,720 $1,612 $349 $183 $185 $617 $1,333 $242 $148 $213 $1,010 $1,613 $440 $370 $365 $980 $2,155 $1,998 % Of Total Sales 18% 17% 17% 12% 10% 17% 15% 13% 11% 10% 27% 18% 21% 23% 19% 24% 22% 20% Y/Y Growth -2% -6% -19% -33% -33% -1% -17% -31% -19% 15% 64% 21% 82% 150% 71% -3% 34% -7% New Software Sales $3,969 $4,048 $731 $474 $770 $1,608 $3,582 $703 $430 $1,102 $1,425 $3,660 $745 $395 $730 $1,750 $3,620 $3,860 % Of Total Sales 42% 42% 37% 31% 43% 45% 40% 38% 31% 52% 38% 40% 36% 25% 38% 43% 37% 38% Y/Y Growth 6% 2% -20% -21% -12% -3% -12% -4% -9% 43% -11% 2% 6% -8% -34% 23% -1% 7% Pre-owned Video Game Products $2,470 $2,620 $619 $562 $496 $753 $2,430 $573 $529 $487 $625 $2,213 $495 $440 $415 $650 $2,000 $2,005 % Of Total Sales 26% 27% 31% 36% 28% 21% 27% 31% 38% 23% 17% 24% 24% 27% 22% 16% 21% 20% Y/Y Growth 3% 6% -1% -11% -9% -8% -7% -7% -6% -2% -17% -9% -14% -17% -15% 4% -10% 0% Total Other Segment $1,315 $1,271 $304 $331 $322 $584 $1,541 $348 $277 $305 $700 $1,630 $410 $404 $411 $730 $1,955 $2,170 % Of Total Sales 14% 13% 15% 21% 18% 16% 17% 19% 20% 14% 19% 18% 20% 25% 21% 18% 20% 22% Y/Y Growth 10% -3% -2% 41% 31% 22% 21% 15% -16% -5% 20% 6% 18% 46% 35% 4% 20% 11% Total $9,474 $9,551 $2,002 $1,550 $1,773 $3,562 $8,887 $1,865 $1,384 $2,107 $3,760 $9,116 $2,090 $1,609 $1,921 $4,110 $9,730 $10,033 % Of Annual Sales 100% 100% 22% 17% 19% 39% 100% 20% 15% 23% 41% 100% 21% 17% 20% 42% 100% 100% Y/Y Change 4.4% 0.8% -12.2% -11.1% -8.9% -0.5% -7.0% -6.8% -10.7% 18.8% 5.6% 2.6% 12.0% 16.3% -8.8% 9.3% 6.7% 3.1% Total ex Other 4% 1% -14% -19% -15% -4% -11% -11% -9% 24% 3% 2% 11% 9% -16% 10% 4% 1% DIGITAL & Recommerce DIGITAL & Recommerce DIGITAL & Recommerce DIGITAL & Recommerce Digtal receipts $289 $453 $111 $134 $127 $309 $681 $149 $138 $138 $301 $726 $209 $193 $211 $411 $1,024 $1,057 % of Total Sales 3% 5% 6% 9% 7% 9% 8% 8% 10% 9% 8% 8% 10% 12% 11% 10% 11% 11% Y/Y Change 61% 57% 23% 27% 34% 60% 50% 34% 3% 9% -3% 7% 40% 40% 53% 37% 41% 3% Recommerce Sales Estimate $33 $40 $29 $43 $68 $180 $46 $42 $50 $50 $188 $40 $35 $33 $52 $160 $160 % from idevice trade-ins 1% 7% 7% 7% 9% 7% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% Y/Y Change 107% 50% 14% 46% 17% -26% 5% -14% -17% -33% 4% -15% 0% GROSS PROFIT BY CATEGORY GROSS PROFIT BY CATEGORY 18.1% GROSS PROFIT BY CATEGORY GROSS PROFIT BY CATEGORY New Hardware Gross Profit $125.0 $113 $23 $16 $19 $44 $102 $20 $16 $22 $64 $121 $28 $23 $23 $62 $136 $126 % Of GP 4.9% 4.2% 3.8% 3.2% 3.4% 4.5% 3.8% 3.5% 3.2% 3.6% 6.7% 4.6% 4.6% 4.8% 4.2% 5.8% 5.0% 4.59% Gross Margin Est. 7.3% 7.0% 6.6% 8.9% 10.2% 7.1% 7.6% 8.4% 10.5% 10.2% 6.3% 7.5% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% New Software Gross Profit $827 $839 $150 $108 $175 $354 $786 $148 $99 $241 $325 $813 $171 $91 $168 $403 $833 $849 % Of GP 32.5% 31.3% 25.0% 20.7% 31.4% 36.3% 29.7% 25.6% 20.5% 40.3% 34.0% 31.1% 28.7% 18.6% 30.6% 38.0% 30.9% 31.0% Gross Margin Est. 20.8% 20.7% 20.5% 22.7% 22.7% 22.0% 21.9% 21.1% 23.0% 21.9% 22.8% 22.2% 23.0% 23.0% 23.0% 23.0% 23.0% 22.0% Pre-owned Video Game Gross Profit $1,140 $1,221 $304 $270 $240 $356 $1,170 $271 $251 $217 $303 $1,040 $238 $211 $197 $309 $955 $954 % Of GP 44.9% 45.6% 50.7% 51.9% 43.0% 36.6% 44.1% 46.8% 52.1% 36.2% 31.6% 39.8% 39.8% 43.1% 35.9% 29.2% 35.4% 34.8% Gross Margin Est. 46.2% 46.6% 49.1% 47.9% 48.3% 47.3% 48.1% 47.3% 47.4% 44.5% 48.4% 47.0% 48.0% 48.0% 47.5% 47.5% 47.7% 47.6% Other & DLC Card Gross Profit $450 $506 $123 $126 $124 $221 $594 $139 $116 $119 $265 $640 $160 $164 $161 $285 $770 $811 % Of GP 17.7% 18.9% 20.5% 24.2% 22.2% 22.7% 22.4% 24.1% 24.2% 19.9% 27.7% 24.5% 26.9% 33.5% 29.3% 26.9% 28.6% 29.6% Gross Margin Est. 34.2% 39.8% 40.5% 38.0% 38.5% 37.9% 38.5% 40.0% 42.0% 39.0% 37.9% 39.2% 39.1% 40.6% 39.1% 39.0% 39.4% 37.4% Total $2,542 $2,679 $600 $519 $557 $975 $2,652 $578 $481 $598 $956 $2,614 $597 $489 $549 $1,058 $2,693 $2,741 Gross Margin % 26.8% 28.1% 30.0% 33.5% 31.4% 27.4% 29.8% 31.0% 34.8% 28.4% 25.4% 28.7% 28.6% 30.4% 28.6% 25.7% 27.7% 27.3% GameStop GME.xls Page 7 of 9

8 IMPORTANT RESEARCH DISCLOSURES Notes: The boxes on the Rating and Price Target History chart above indicate the date of the Research Note, the rating, and the price target. Each box represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first Note written during the past three years. Legend: I: Initiating Coverage R: Resuming Coverage T: Transferring Coverage D: Discontinuing Coverage S: Suspending Coverage OW: Overweight N: Neutral UW: Underweight NA: Not Available UR: Under Review Distribution of Ratings/IB Services Piper Jaffray IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [OW] HOLD [N] SELL [UW] Note: Distribution of Ratings/IB Services shows the number of companies currently in each rating category from which Piper Jaffray and its affiliates received compensation for investment banking services within the past 12 months. FINRA rules require disclosure of which ratings most closely correspond with "buy," "hold," and "sell" recommendations. Piper Jaffray ratings are not the equivalent of buy, hold or sell, but instead represent recommended relative weightings. Nevertheless, Overweight corresponds most closely with buy, Neutral with hold and Underweight with sell. See Stock Rating definitions below. Analyst Certification Michael J. Olson, Sr Research Analyst Analyst Certification Andrew D. Connor, Research Analyst The views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Page 8 of 9

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