Wall Street Journal- GameStop’s business isn’t politics. But the videogame retailer’s future with investors may hinge on its persuasive abilities. And, lately, it has been pretty unpersuasive.
This was apparent Monday when the company posted disappointing results for its fiscal third quarter. At the same time, it was working to convince investors that its business isn’t being destroyed by digital downloads.
That has weighed heavily on the stock, which has shed more than $800 million in market value since Nov. 12. That is when NPD’s monthly game sales report led many to conclude that Microsoft’s “Halo 5: Guardians” sold a much higher percentage of digital copies than previous games of that caliber.
Digital downloads hurt GameStop’s new software sales, which accounted for one-third of total revenue in the period ended Oct. 31. More worrisome, they eventually challenge the company’s used-game business, which accounts for nearly half of gross profit.
For its part, GameStop claimed downloads of “Halo 5” are actually in line with previous big game launches. On its earnings call, the company said the discrepancy between reports from Microsoft and NPD could be chalked up to a number of factors—including the fact that NPD only tracks retail sales in the U.S.
Investors aren’t buying it. The heavily shorted stock was still off sharply after the call and has lost 18% since the NPD report. GameStop’s shares have given up most gains made this year, and now trade about 8.3 times forward earnings—or about half the multiple of the S&P 500.
A dividend yield in the 4% range and a low valuation could argue for hitting the pause button on the selloff. But GameStop will struggle to move higher in the near term. The company is quickly building up alternative businesses in the sale of phones, electronics and other merchandise. These still account for just 15% of total sales, though.
For the foreseeable future, GameStop’s business will hinge on the task of getting gamers off their chairs and into stores. And that will only grow more difficult.