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Sebastian plays down Amazon impact on GameStop

Analyst doesn't expect "significant impact" on retailer's business; investors not so sure

Following the announcement yesterday that Amazon was to offer site credits for pre-owned videogames, Lazard Capital senior analyst Colin Sebastian has released an investor note for GameStop playing down, in his view, the impact the move will have on the bricks-and-mortar retail chain.

However, investors didn't necessarily agree, with GameStop's share price falling significantly further than the market average - by 14 per cent to USD 23.46.

"We do not expect a significant impact on GameStop's used business as a result of Amazon's new trade-in program," wrote Sebastian, noting that although there would be "more competition for trade-ins... GameStop used should continue to thrive.

"We believe the primary risk to GameStop from Amazon's initiative is greater competition for inventory of used games, and the potential for trade-in values to increase.

"Our survey of ten games on both sites suggests that the Amazon merchant is offering a slight premium to GameStop for a number of trade-ins. However, the Amazon initiative also requires users to mail in the game to NorAm, which will then determine the eligibility of the game to receive the trade-in value.

"We note that GameStop previously tested online trade-ins, which had limited customer acceptance due to the turnaround time required to receive store credit."

Sebastian maintained his Buy rating on the retailer, and his USD 31 price target.