iPhone, iPad to drive GameStop's business?

Apple's iOS-based devices are helping many retailers bolster their bottom lines, but who'd have thought that they would also benefit a boutique game retailer?

In a research note sent to investors today, Wedbush analyst Michael Pachter said that he believes iPhones and iPads could play a "significant" role in GameStop's financial performance in the coming quarters.

"Given the public's seemingly insatiable demand for iDevices, the high trade-in credit that can be received for these devices (as opposed to the typical console game, for example), and the economic constraints felt by many consumers that prevent the purchase of a brand new iDevice," Pachter wrote in the note, "we see this used business as a significant revenue growth opportunity that has not been addressed by GameStop's competitors."

GameStop in September announced plans to accept iPhone, iPad, and iPod trade-ins at some of its stores. During an earnings call with investors yesterday, the company--which also has begun selling Android tablets--reported that trade-ins are now accepted at all of its stores, and it's currently selling those devices on its Web site and across 260 locations.

The financial upside is huge for GameStop. The company currently offers up to $70 for an iPod Nano, up to $150 for an iPod, up to $175 for an iPhone, and up to $375 for an iPad. It then sells those devices (and accessories) at a significant premium.

But there is more to this story than just the profit GameStop can generate from the iPhone and iPad. GameStop has historically relied upon video game software and hardware to drive its business. But with game sales on the decline--industrywide hardware revenue was down 5.5 percent and software sales were down 9.9 percent last quarter--Apple's devices, Pachter notes, could eventually make up for that in GameStop's revenue mix.

GameStop's focus on hardware goes beyond Apple's products. The company also reported at its earnings call yesterday that the Acer Iconia tablet, Asus Eee Pad Transformer, and Samsung Galaxy Tab 10.1 are now available at over 200 GameStop locations and online. GameStop announced their initial availability earlier this month.

GameStop generated $1.9 billion in revenue and a $53.9 million profit during the three-month period ended October 29, the company announced yesterday.