This is a lengthy five part analysis on GameStop (GME) based mostly on VCCharts sales numbers for November and industry insight. The findings and analysis favor a STRONG BULLISH position on GME at current trading levels of 21 and change.

> Part I - November numbers (1st 3 weeks of 2009 vs. 1st 3 weeks of 2008) + Analysis
> Part II - Broader observations/implications for the industry
> Part III - Relevance to GameStop
> Part IV - Overall conclusion
> Part V-  Bonus Section - (Provides analysis on just released VCCharts sales numbers for fourth week of November not available when part I-IV was written)

Part I - November Numbers (1st 3 weeks of 2009 vs. 1st 3 weeks of 2008) + Analysis

Below are my findings in three comparisons (Top 20 games, Top 10, Bottom 10 of top 20).

Sum of Top 20 Titles
Nov 09 (1st 3 weeks) - 12,761,000
Nov 08 (1st 3 weeks) - 9,640
= 32% increase (Very solid increase!)

Sum of Top 10 Titles
Nov 09 (1st 3 weeks) - 11,193,000
Nov 08 (1st 3 weeks) - 7,580
= 48% increase (Even stronger when we compare top 10!)

Bottom 10 of Top 20 Titles
Nov 09 (1st 3 weeks) - 1,568
Nov 08 (1st 3 weeks) - 2,060
= 23% decrease (Here we are actually negative!)

Part I (Cont): Analysis

1) Overall, sales are solidly higher than in 2008. A 30% increase, clearly a HUGE number, and even better in the most important quarter of the year!

2) Clearly, the top titles in 2009 are selling much more units than the top in 2008. Looking closer, the monstrous sales of MW2 account for most of the 30% difference. Yes, just one MEGA TITLE, makes that much difference!

3) Even if we only look at the Games ranked 3-10 (taking out the top 2, thereby taking out MW2 from the mix) we find that the bottom 8 of the top 10, still performed 9% better than last year.

4) For games ranked 10-20, the comp goes negative 23%. Pretty sizable drop! Conclusion here is that sales are concentrating more on top titles.

Part II: Broader Observations/Implications

1. HIT DRIVEN INDUSTRY. As GME management has been saying all along, the game industry is "hit" driven. Sales are driven by hot games. The weak comps earlier in the year were in large part do to lack of big game releases vs. 2008. Not to say we have not had some disappointments, because we have. For example the music genre which is way past its prime, but for the most part a good part of the sales declines in the first part of the year were do to lack of strong titles being released.

2. MORE HIT DRIVEN THAN EVER/"WINNER TAKES ALL". The industry has always been "hit driven" but there is a definite trend towards concentration of sales on the top games (and less sales for everyone else). So there is a select tiny number of MEGA MEGA winners (ex. MW2/GTA), a few more solid performers (ex. Halo/Assassins Creed II), and many many losers.

The game companies ALL recognize this trend, and are all "focusing/investing" on fewer, but higher quality titles.

3. THEORY AS TO WHY THE ABOVE TREND
I believe the growing installed base of all the game systems is driving the top games. Higher installed base correlates to greater sales of blockbuster MUST HAVE games.

Your average gamer is concentrating his/hers limited resources on the sexy hot titles, and PASSING ON ALL THE REST. This is probably a trend made much worst by the poor economy, where people are forced to be more selective and to play it safe. If you can only buy 2-4 games in a year, which would you pick?

Furthermore, the trend is further magnified by the game companies that are reacting to it. They are investing in quality, in proven sequels, and then boosting their advertising on these games. Boom, the trend is reinforced and made stronger.

SO WHAT DOES ALL OF THIS HAVE TO DO WITH GameStop? . . .

Part III: Relevance to GameStop

1) Both the recent Wal*Mart promotion and the TTWO blowup are NON-EVENTS

a. WAL*MART
The Wal*Mart promotion leaves out 3 of the top 4 games, and L4D2 the one top game on the sale, is not heavily discounted. GameStop is actually cheaper on that one! So who cares if they discount games that are not current best sellers, there is no volume in these promoted games anyway.

Dropping pricing on older titles or ones that are not performing is a natural practice in the industry or any business. Wal*Mart's PR department was just smart to sell it as promotion on "25 Top Games" but they leave out that likely 80% of sales are coming from the 3 TOP titles they DID NOT INCLUDE in the promotion. The $50 gift card on the Wii is real NEWS, and probably has some affect on GME (though limited) but the rest of the add is bogus.

So why all the fuss in the media? The lack of articulate counter attacks by analysts that are positive? There is no unusual price war that I can see.

Yet the stock is DOWN, way down, so the Wal*Mart story must be true, right? Nope, I really believe its shorts or other interests "manipulating" or just plain ignorance.

b. TTWO NEWS
As if the sell off in GME was not steep enough on the Wal*Mart exaggerations, they tried to take down GME further on TTWO's greatly disappointing guidance today.

Guess what? TTWO only has one moderate hit with Borderlands in the Top 10 in November (ranked 8th in week of Nov 7th, with 92,000 copies; and 9th week of Nov 14th with 74,000). This compares to let's see, about 5,000,000 of MW2 just in the week of Nov 14th. Hmm sales of MW2 are more than 50 times more relevant!

Conclusion is clear, TTWO has a very weak line up this quarter, its IRRELEVANT given the "Winner Takes All" trend. So what is TTWO going to do going forward, you guessed it, focus on fewer titles, and invest more in quality and promotion.

2. MW2 is a MONSTER for GME (hard to emphasize this enough)
We know that MW2 sales are HUGE, and probably higher than the already high estimates.

How big is big?

For the two first weak of its release (Nov 14 & 21) it accounts for more than 50% of sales of the Top 20 games sales. Winner does take all!

And guess who sold more than their fare share of this baby? GME of course, which keeps taking larger and larger share of mega selling titles and launches, in fact it's a major player in the launch itself.

This probably holds for other top sellers in November/December, so who cares about the Wal*Mart titles or TTWO? Not relevant, probably less than 3% relevance. Again, so why are we down 10% on the Wal*Mart news, and down more than 20% since recent highs?

Part IV: Overall Conclusions/Caveat

1. Q-4 Despite the recent "bad news" the drivers for GameStop earnings (high share of Hit Games + Used Sales) are intact. I give an earnings "beat" a much higher probability than an earnings "disappointment" in Q4. Q-4 will be a RECORD quarter, and perhaps a Blowout Record Quarter for GME, this in the midst of the Great Recession!

2. Q-1 As we all know the roster of games for Q-1 is VERY STRONG as many AAA titles were moved from 2009 to 2010. A RECORD Q-1 is in the bag too, and the comps vs. 2009 are very easy to boot.

So, I have no fear in the short term. Clearly, a very bullish story is my opinion! Longer term, do not know if Digital Downloads could hurt the industry, stronger competition from Best Buy, RedBox video game rentals, streaming, other etc. But for now GME is the clear and proven champ in what is still a GROWTH industry, and to boot, GME is agressively gaining market share quarter after quarter. Those are the "facts" and that is the "real trend/news" until proven otherwise (which has yet to happen).

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Part V: Bonus Section (Looking at VGChartz Data for week of November 28th) - (Written with new data available after Part IV was written)

The VGChartz numbers for the black Friday mega week of November 28 came in at 25%+ over last year.

Factoring the VGChartz results for the previous three weeks of November, we are up about 32% (Nov 09 623 million vs. Nov 08 471 million)

Looks A W E S O M E to me! These are EXTREMELY SOLID numbers!

2009
Week 4 25.5 million
Week 3 155.5
Week 2 137
Week 1 76
TOTAL 623 million

2008
Week 4 196 million
Week 3 108
Week 2 89
Week 1 78
TOTAL 471 million

Assuming these numbers hold up through December or at least do not deteriorate too badly, we should have a fantastic Q4 for the video game industry. Furthermore, GME has been OUTPERFORMING and TAKING SHARE in the industry, so its numbers should be even better.

As we all know, STOCKS MOVE ON EXPECTATIONS AND SENTIMENT and all the hyped news flow lately has been VERY NEGATIVE:
1) Disappointing sales in Video Game industry in 2009 (linked to poor economy)
2) Wal*Mart Competition
3) TTWO stomach sickening guidance
4) Disappointing Christmas sales for most retailers

THIS NEGATIVE NEWS FLOW PROBABLY COUPLED WITH SOME MANIPULATION HAS BROUGHT GME DOWN TO CLOSE TO 21

But, the REAL NEWS appears to be that November will be an absolute BLOWOUT month for the video game industry. Newsflow should turn very positive soon, our friends at Goldman may even come out with an upgrade or some positive comment. Of course, this after they probably loaded up on cheap shares yet again. Assuming my deductions are right, we are setting ourselves up for a HUGE CLASH between VERY POSITIVE NEWS and VERY POOR EXPECTATIONS. That is usually a recipe for a huge upside move in GME!

MORE BULLISH NEWS - PS3 AND X-BOX GAINING SHARE

Something else that is clear from month of November VCChartz is the strength of the PS3, particularly in the important week of Nov 28th, were it more than doubled sales from the prior year (476,500 vs. 198,000). If we combine both sales of PS3 and Xbox, in November they account for 54% of systems sold, vs. 46% for Wii.

Here are sales for the month for each system:
Wii 09 1,374,000 Wii 08 1,860,000 - Down about 25%
PS3 09 841,000 PS3 08 440,000 - Up about 90%
Xbox 09 805,000 Xbox 08 948,000 - Down about 15%

ON THE SOFTWARE SIDE
Without going into details, software directed at PS3 and Xbox has also significant share this November a trend I expect to contine going forward.

HOW IS THIS POSITIVE TO GameStop?
1. I believe GameStop captures a larger share of the PS3/Xbox gaming dollar than that of the Wii.

2. PS3/Xbox games usually have higher price points, so higher sales of these games are positive to GME revenue/profits.

3. The mega AAA grand event titles such as MW2, where GME has particularly strong market share/competitive advantages, are mostly PS3/Xbox games with loyal "gamer" fan bases.

So . . .

My early take on the Christmas numbers is that the PS3 has finally found a price point where its installed base will expand dramatically. Xbox will have to compete, the two will gain share vs. Wii. But best of all the installed base on ALL systems seems to have quite a bit more room to grow as pent up demand for PS3 comes in.

Also, software companies such as ATVI, ERTS and even TTWO should benefit as they have been much more successful at games directed at the PS3/Xbox than the Wii. Perhaps George Zoros who bought a sizeable amount of shares in ATVI in the third quarter is also familiar with these trends.