Gamestop's Market Position Can Withstand Amazon's 'Twitch Prime'

There's nothing to worry about GameStop Corp GME shares as long as the company enjoys loyal "power up" membership base besides its business model. Investors need not have to take too much into Amazon.com, Inc. AMZN's Twitch Prime that was recently announced.

Baird believes there is bound to be near-term noise on the competitive environment with the biggest online retailer's entry. The firm thinks the latest addition could widen the scope of promoting Amazon Prime to add members.

However, the brokerage believes that GameStop continued to expand in fresh categories such as collectibles and tech brands. Analyst Colin Sebastian retained his Outperform rating and $40 price target on shares, implying more than 40 percent upside.

Baird pointed out that GameStop has boosted its market share in the American hardware and software sector in the last five years from 25 percent in 2010 to 35 percent in 2015, though Amazon is credited for disrupting several business models.

In a note, the analyst said, "We believe the company's "PowerUp" rewards program (46M members globally, 1 in 5 US households) and buy/sell/trade model in particular create a defensible competitive moat for GameStop, and expect only modest, if any, impact from Amazon's new initiative (Walmart and BestBuy probably lose more category share.)"

Aside from this, the brokerage pointed out that the online retailer has been offering some of the Twitch Prime benefits in the last one year period. Therefore, its impact on core business of GameStop wouldn't be meaningful. As a result, any pullback should be taken as a buying opportunity.