Resident numbers guy Matt Matthews digs deeper to find out exactly how much GameStop is making from the used games business. Short answer? Piles. Long answer in glorious chartoramic stat-o-vision...

After reading Colin Campbell's editorial on GameStop and used games I thought it would be worth digging into the numbers and seeing what kind of money was at stake. What kind of revenue is GameStop reporting each year? How much of that comes from used software? And how much are they making on used software compared to new software?

As a publicly traded company, GameStop files a 10-K with the SEC every year, and the numbers we need are in those public documents. The data recorded there gave me what I needed for the past five fiscal years. In April, GameStop will file a new 10-K and we'll get to see a new year's data, covering most of 2007 and the beginning of 2008. (We could look at their latest 10-Q and see how they've done for most of 2007. I'll leave that as an exercise for the curious reader.)

We'll start with a view of net sales per market segment. In the graph below, the blue bar indicates the total number of dollars going into GameStop cash registers from the sales of new hardware.



This looks great for new software (the orange bar): it's the biggest segment and it has grown by 384% in these five years. On the other hand, used products (which I figure is mostly software) is usually the second largest segment and has grown by 444%. Note that discrepancy – 384% compared to 444% – which says that the used product segment has grown faster than the new software segment.

Next stop, gross profit. This is the amount of money from sales that GameStop gets to keep after deducting the cost of the product. If a game costs you $54 and you sell it for $60, then your gross profit is $6.



Now the roles are reversed. Used products are the largest segment of GameStop's business. In fact, used product sales accounted for 44% of GameStop's gross profit during the last reported fiscal year.

Finally, let's look at gross profit margin, or the ratio of gross profit to sales in GameStop's last annual report. I've chosen to represent gross profit margin below in terms of cents per dollar of sales. In other words, if a game costs you $54 and you sell it for $60, then you gross profit margin is 10% or 10¢ per dollar. Obviously, a higher gross profit margin is better.



So for every dollar in new software sales, GameStop gets to keep just over 21¢. But for every dollar in used product sales, GameStop makes almost 50¢. It's worth noting that the Other category, which I believe includes accessories, also has a fat gross profit margin of 34¢.

Let me offer some perspective. GameStop is currently selling a new copy of Halo 3 for $60 and a used copy for $55. Let's assume – and it is a fairly big assumption – that the numbers above apply to this specific software title.

If they sell you the new copy, then they get to take home $13 out of the $60, roughly speaking.

If they sell you the used copy, then they get to take home $27 out of the $55, again roughly speaking.

This isn't rocket science. GameStop will obviously want to sell you a used copy if they have one.

Finally, I did a quick back-of-the-envelope computation to estimate the number of new and used game transactions GameStop recorded in its last annual report. While I was unable to find these figures directly in GameStop's 10-Q forms, they did give a clue: used games sell for $14 on average and new games sell for $36 on average.