GameStop (NYSE: GME) didn't have a great third quarter. Total sales increased by slightly higher than 5%. On a GAAP basis, earnings dropped three pennies to $0.28 per share. If you exclude items such as debt extinguishment and foreign currency effects, then adjusted earnings per share on a diluted basis increased 19% to $0.38.

The bottom line may have increased by double digits by GameStop's calculation, but there are a couple reasons not to be too impressed by the performance. First, management missed the analyst's call by three pennies (this particular source is using $0.34 as an adjusted number, and comparing it to the expectation of $0.37). Second, and of higher importance to me, same-store sales decreased 1.8% during the quarter.

Now, it is true that the video-game retailer was cycling off a dramatic 46.3% increase in comps in the year-ago period, an expansion that was driven by Microsoft's (NASDAQ: MSFT) incredible Halo 3 phenomenon. I realize it was a difficult comparison. But there's no way that an investor can't be disappointed by that figure. The difference between positive 46.3% and negative 1.8% is rather sizable; I think management should have tried a little harder to deliver a number on the positive side of things at the very least.

There are some who say that video games will be just fine during the economic crisis. Of course, you have to consider who's spouting this idea when evaluating it. According to this article, gaming giants Microsoft (NASDAQ: MSFT) and Sony (NYSE: SNE) believe that the upcoming holiday season won't be so tough on their PlayStation 3 and Xbox 360 consoles. They agree with some pundits who think that people will look to drop several hundred dollars on a system as opposed to spending even more on bigger-ticket items such as a vacation. If people cocoon in their homes during this terrible time period to save cash, then they may want to play video games. That's one dimension of the argument.

The other is that consumers may turn to escapist fantasies and casual diversions to take their minds off their problems. In this sense, video games are no different than the movie industry, which is supposed to be resistant to recessions. Again, companies like Disney (NYSE: DIS) and Time Warner (NYSE: TWX) make content that can immerse you in worlds that are different (and more fun) than the one you currently exist in.

Both arguments make sense. Many video games are like movies these days, so comparing them to the film industry is important. And video games definitely are cheaper than a trip to Walt Disney World. However, there are a few things to keep in mind when thinking about these concepts and making an investment decision. First, we are arguably in an environment that we've never seen before. The variables are so different these days. Who's to say how recession-proof movies are going to be, let alone video games? An Xbox 360 can be had for $200. So what if it's less than a trip to Mickey Mouse's castle? Consumers will still be aching. At the very least, if parents don't cut back in terms of buying Johnny a system for Christmas (and they may not, since parents oftentimes refuse to disappoint their kids during the season of Santa), then surely the households who already have one system installed will think twice about installing a second system (yes, many households have multiple systems).

Take-Two Interactive (NASDAQ: TTWO), the troubled video game company, is releasing the new version of its popular game Grand Theft Auto IV. The product is expected to set all-time records for the sales of a single video game title.

The Wall Street Journal writes that one analyst "predicts first-week Grand Theft Auto IV sales could be more than $400 million. On Metacritic.com, which compiles game-review scores from dozens of publications, the PlayStation 3 version of the game had a 100 out of 100 score." In other words, it will sell like hotcakes.

Leaving aside the hostile takeover offer by Electronic Arts (NASDAQ: ERTS) to buy Take-Two, the potential sales of the game raise an interesting question.

Consumers pocket books are tight. A larger and larger portion of their income is going to food and gas as the price of those staples rises. Eating out and buying clothes from retailers has clearly dropped off. Many people don't have the money to buy the basics.

In the face of all that, Grand Theft Auto IV is expected to sell extraordinarily well. Microsoft (NASDAQ: MSFT)'s Halo 3 has already set sales records. Game consoles, the PS3, Xbox 360 and Wii are all setting sales records.

Either the consumer has a little more money than most analysts think, or the only thing they have money to do is sit for hours in their darkened homes and play video games.

Douglas A. McIntyre is an editor at 247wallst and the author of Ten Stocks Under $10.

Microsoft (NSADAQ: MSFT) has cut deals [subscription required] with NBC, CBS (NYSE: CBS), Disney (NYSE: DIS) and a number of other media companies to use their video content on its Xbox Live and MSN services.

According to The Wall Street Journal, "under the agreements, Disney, MGM and Showtime will contribute programming to Xbox Live, an online service with about 10 million subscribers that is primarily used for playing videogames."

Microsoft may be getting a great deal of content, but the question remains whether people would want to watch content through a video game platform, no matter what other features it has. At this point, the American living room is wired with satellite and cable VOD, DVRs, video game platforms and set-top boxes from companies like Amazon (NASDAQ: AMZN). All of this clutter means that no one company is likely to be able to stand out as a core provider of entertainment services.

It is a good thing that the Xbox can be used for playing Halo 3. It is not likely, however, to become a core video viewing device. The consumer won't be able to find it in the pile of other devices.

Douglas A. McIntyre is an editor at 247wallst.com.

Microsoft (NASDAQ: MSFT) says it sold 4.3 million Xbox 360s in the last quarter of 2007. The popularity of the company's Halo 3 game helped.

According to Reuters, "'Holiday 2007 was a blockbuster season for the gaming industry,' Microsoft said, adding that the Xbox 360 has kept its lead over rivals in terms of total dollars spent on hardware and software." The company did say that its online game download service had problems toward the end of the year and offered a free game to 8 million users.

The news means that Microsoft's device division will probably be profitable for the fourth quarter. It lost money for years. But it also raises the issue of why the world's largest software company is in the business at all. The division brought in $1.9 billion last quarter, but had an operating profit of only $134 million.

The problems that the company has had with its game download service and past issues with the Xbox hardware only give Redmond a bad name. That does not exactly help the image of its core software business.

Douglas A. McIntyre is an editor at 247wallst.com.

A rising tide lifts all ships. Sales of game consoles moved up sharply in November. There had been news from comScore and other research firms that electronic game sales were ahead of all other e-commerce purchases, but no one was certain what was happening in the bricks-and-mortar stores.

Video console sales were so good last month that even the Sony (NYSE: SNE) PS3 did well. Sony did cut prices on the PS3, but why shouldn't it benefit from that? According to MarketWatch, "sales of game software in North America soared 62% to $1.3 billion for the month, according to data released late Thursday from the NPD Group."

The numbers were spectacular. PS3 sales rose to 466,000 from October numbers of 121,000 units. Nintendo's Wii jumped to 981,000 from 519,000 during the same period, despite shortages of the units. Microsoft's (NASDAQ: MSFT) Xbox 360 sales moved up from 366,000 to 777,000, perhaps helped by the recent launch of its "Halo 3" game.

Whatever the reason, video games are the hot property this holiday season. No other category appears to be growing as fast.

Why? Perhaps the major reason is that a video game console can be bought for about $500. The new ones can be used for both games and HD DVD playback. In other words, they are a versatile and relatively inexpensive product.

In a holiday season when the consumer may be feeling a little pinched, what better gift than something almost everyone can play with. And, it is a lot less expensive than a pony or new car.

Douglas A. McIntyre is an editor at 247wallst.com.

There was some hope on the part of Microsoft (NASDAQ: MSFT) and Sony (NYSE: SNE) that their plans to pick up market share in the video game console market might work. Sony cut the price of its PS3 and sales did pick up in late October. Microsoft rested its hopes on its Halo 3 game to drive sales of the Xbox 360.

While each company did do something to benefit sales, Nintendo's Wii could not be pushed out of first place in U.S. game console sales. October sales of all video games went through the roof. According to Reuters "total sales were $1.1 billion, compared with $643 million a year earlier, according to market research firm NPD."

That would mean that all three companies may have done relatively better than they did last year. But the Wii still had a commanding lead, with unit sales of 519,000 in the U.S. Microsoft sold 366,000 Xbox consoles and Sony moved 121,000 PS3s.

The news appears to be relentlessly bad for everyone other than Nintendo. Price cuts and popular games may spike sales, but that appears to be temporary. The price and popularity of the Wii keep pushing it back to the top of the pile.

The news is especially bad for Sony. Its video game business used to be its big earnings engine, back when the PS2 ruled the gaming world. Operating income from the game division is now an anchor that pulls down the balance of the company's financial results.

Maybe Microsoft and Sony should merge their gaming divisions and call their flagship product the XBox3603PS.

Douglas A. McIntyre is an editor at 247wallst.com.

Microsoft Corp. (NASDAQ: MSFT) today reported outstanding third quarter results that handily beat Wall Street expectations.

Net income was $4.29 billion, or 45 cents a share, compared with $3.48 billion, or 35 cents, a year earlier, Sales surged 27 percent to $13.8 billion. Analysts had expected profit of 39 cents and sales of $12.57 billion, according to Thomson Financial. Shares soared over 9% in after-market trading.

Of course, the world's largest software maker, which until now was in Wall Street's dog house, couldn't have been more pleased. "This fiscal year is off to an outstanding start with the fastest revenue growth of any first quarter since 1999," said CFO Chris Liddell, in the earnings release. "Operating income growth of over 30% also reflects our ability to translate revenue into profits while making strategic investments for the future."

So does this mean that Wall Street is now going to get off Microsoft CEO Steve Ballmer's back about the billions the company is spending to catch up to Google Inc. (NASDAQ: GOOG)? Not very likely. One quarter does not make a trend even with its recent deal with Facebook.

But there is plenty for investors to like in the quarter. Vista sales seemed strong and the company hasn't been aggressively cutting xBox prices which has helped profitability, RCM Capital Management's Walter Price told Bloomberg News.

There is one perplexing side to the strong tech results this earnings side. If consumers are so worried about the future, how come they are willing to buy things like the Xbox, Vista and Apple Inc.'s (NASDAQ: AAPL) iPhone. Aren't they worried about housing, energy costs and life in general? Maybe they are so focused on their tech toys that they don't care about the rest of the world. Who knows.

Visit AOL Money & Finance for more earnings coverage

Microsoft (NASDAQ: MSFT) will be reporting its Q1 results tomorrow, and industry estimates have the world's largest software maker pegged at an EPS figure of $0.39 on $12.57 billion in revenue. In July (Q4's conclusion), Microsoft forecast a Q1 profit of 38 cents per share to 40 cents per share on revenue of $12.4 billion to $12.6 billion.

Analyst predictions for Q1 performance centered on better-than-expected PC sales on a global basis plus the uber-successful launch of Microsoft's Halo 3 game for the Xbox 360 console that went on sale about a month ago. First-day sales of the game set entertainment records, outpacing any previous game or even film, with a take of $170 million.

Microsoft is also set to launch a stripped-down version of the Xbox 360 console in November at a price point of $279, pegged squarely at competing with the best-selling Nintendo Wii system that has proved incredibly popular this year due to its unique gameplay and $249 price. But that won't help Q1 numbers -- only Q2 numbers. Still, the software company may have a splendid Q1 period, and as of now, its shares are trading above $30 for the first time since July.

Visit AOL Money & Finance for more earnings coverage

Halo 3 may have done better than expected, but it also had a very long tail that pulled up sales of the Microsoft (NASDAQ: MSFT) Xbox 360.

NPD, the research firm, reported that Microsoft sold 528,000 consoles in September. The FT writes that NPD said "3.3m US copies of Halo 3 were sold in the five-week retail period, despite the game only being launched on September 25."

The Nintendo Wii sold 501,000 units, also a monthly record. But the Sony (NYSE: SNE) PS3 sold only 119,000.

While Xbox 360 sales almost doubled from August, and Wii sales were up 24%, the PS3 number was actually a slight drop.

The September headline may be about Halo 3 and Xbox 360 sales, but most of the story has to do with Sony. After years of dominating the video game business with PlayStation 2, its new version is widely considered a failure. It is unclear whether a recent price cut can change the momentum as the holiday season gets into full swing.

It may be that the gaming unit, which drove Sony's earnings for so long, will never do so again and that the big Japanese company will have to rely on TV and consumer electronics sales along with the results from its movie studio.

The PS3 may be doomed.

Douglas A. McIntyre is a partner at 247wallst.com.

Is Microsoft Corp. (NASDAQ: MSFT) still a good investment? After the ten-bagger days of the 1990s, it's hard to get excited about a 30 year-old software company that is getting upstaged in the media these days by more popular names like Google, Inc. (NASDAQ: GOOG) and Apple, Inc. (NASDAQ: AAPL). Microsoft has attempted to stay in the game this year (at least from a media perspective) by acquiring aQuantive, its largest-ever purchase.

Add to that the incredible sales of Halo 3 since its debut in late September and there are many bright spots on Microsoft's armor. However, Windows Vista uptake has been slower than some forecast, and that's not the whole negative story. Although its games division is peaking right now, there are years of hard work ahead to make that area consistently profitable and growing. So, again -- why buy Microsoft?

Microsoft's corporate products get little attention from the mainstream media these days, but its Office and Exchange software franchises continue to be the lifeblood of many global companies. Sure, Google is trying to nip away at those services with semi-comparable web-based offerings, but that effort will limit itself before becoming a large threat. As noted by 24/7 Wall St., newer products are on tap, and Goldman Sachs strongly hints at a bright future for the company, at least in the short term.

In a move that may help video game giant Electronic Arts (NASDAQ: ERTS) compete more effectively with the new Microsoft (NASDAQ: MSFT) "Halo 3," the company has agreed to buy two game publishers.

According to The Wall Street Journal, EA will purchase VG Holdings Corp., the parent company of game makers BioWare Corp. and Pandemic Studios. The game studios create nice ultra-violent games like Destroy All Humans! The companies were owned by Elevation Partners and according to the paper, "the deal is the first time Elevation, which counts U2 singer Bono among its partners, has cashed out of one of its investments."

EA said it will pay as much as $620 million to VG Holdings and $155 million in equity to certain employees.

Electronic Arts could use the help. "Halo 3" sold $300 million in its first week on the market. EA does $700 million in a typical quarter. And games like Destroy All Humans! give the company a product to attract young males buyers of games in which large numbers of humans and aliens are destroyed in a short period.

At $59, EA's stock is near its 52-year top. The new purchase could help push it higher.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Microsoft Corp. (NASDAQ: MSFT) is known as a stifler of individual culture in many ways, and why would it not be? Most companies that are decades old, global, and are billion-dollar enterprises emerged from a shifty, risk-taking entrepreneurship to bureaucratic, slow-moving, corporate monstrosities with so many layers of management that they would make the world's largest sheet cake jealous. Unfortunately for Microsoft, that apparent corporate culture is not sitting well with Bungie Studios, the game studio that created the Halo game series and have made more gaming and entertainment money for Microsoft that all other efforts combined. Halo 3, the latest in the series, has made $300 million for the company -- and it's not even two weeks out of release yet.

Is Bungie really trying to split away from its large corporate parent? Bungie pulled away from its parent to develop Halo 3 and even blocked entrance into its studio by Microsoft employees as development ramped up. Is this a sign of a small company not wanting to be ruled by its corporate overlord. Yes, it is -- but the best product sometimes comes from non-interference from the top brass. It's when you let Harvard MBAs and other folks out of touch with the real world start mandating things that innate innovativeness becomes trampled upon.

This is precisely what Bungie developers probably recognized. But to go as far as stating they want out of the marriage with Microsoft? That's intriguing, to put it mildly. I agree with Dvorak here -- in contrast to Google, Inc. (NASDAQ: GOOG), which encourages innovation and non-meddling from its employee population -- and then lets those ideas become actual products -- Microsoft is acting like some anti-innovation dinosaur in this case from all appearances. The world could stand to let smaller divisions do what they do best without interference from the large, ill-equipped bureaucracy.

Microsoft Corp.'s (NASDAQ: MSFT) launch of the Halo 3 game took in a reported $170 million the very first day, as Doug reported this morning. Over at 24/7 Wall St., the reference to a "Halo 4" game coming in the future is peeked at.

With Microsoft having made the single-largest take in entertainment history in any medium (games, music, movies, etc.), it is hard to think what the software maker is noodling about right now. After all, we are talking about a game release that broke every record in the entertainment industry for a division that lost nearly $2 billion last year.

Is the hype enough to keep Microsoft in the gaming business? Shareholders have been extremely patient with the company while it racked up loss after loss from the games division, as the company was pretty assured profit would eventually come. Microsoft even purchased Bungie Studios (makers of the Halo games) to cash in on sales from the Xbox platform's most popular gaming franchise.