In a recent email to investors, Todd Greenwald of Signal Hill reaffirmed GameStop's used game business; he doesn't see any competitors like Amazon or Best Buy muscling in on this space. Greenwald does, however, see the threat that digital distribution presents to GameStop's business model.

"While we agree with GME management that full digital distribution is not coming any time soon, we believe that downloadable content is starting to take off now, and could slowly pressure GME's growth rate as packaged goods business begins to slow," said Greenwald. "Publishers see digital/online as a way to kill 2 birds with one stone – boost margins and thwart the sales of used games – and are starting to experiment with ways to sell DLC directly to the consumer."

He went on to comment how growth for the first half of 2009 should be muted because of the comparison with a very strong first half of 2008, which had Grand Theft Auto IV and Super Smash Bros Brawl. Greenwald also made an interesting note that GameStop might lose share of the Wii market.

"We believe Gamestop could lose some share of the Wii market, as the console will not be supply-constrained in 2009, and more likely to be picked up by casual shoppers at big-box retailers like Wal-Mart, Target, Best Buy, etc," Greenwald stated. "While fewer low-margin hardware sales won't likely be too concerning to Gamestop's bottom line, the Wii supply/demand imbalance did drive significant traffic to Gamestop's stores, which now could be redirected to its competitors."

Greenwald theorized that the recession could actually help GameStop, given that gamers might have less money to spend, making cheaper used titles look more appealing. He gave a 'hold' rating to GameStop at its current stock levels around $25.