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GameStop Stock Plummets in Face of Dire 2019 Physical Video Game Sales Predictions

GameStop expects its sales will drop 5% to 10% in 2019 compared to last year, the company announced in its earnings report this week. News of the predicted drop, coupled with the company’s report of a drop in new hardware and new software sales in its fourth quarter, was followed by a precipitous drop in its stock, down 13% to $8.82 a share Wednesday morning.

The drop in stock value — the lowest its been since 2004 — as well as drops in reported sales and expected sales come as GameStop continues to right itself in a video games market that increasingly sees physical sales as irrelevant.
The retailer appointed George Sherman as its new chief executive officer last month. Sherman replaces Shane Kim, who’s served as interim CEO since May 2018. Shane, a former Xbox executive, took over the role after Michael Mauler resigned after just three months on the job.

A week after announcing Sherman’s appointment, GameStop detailed its plans to expand into esports as it continues to refocus its business more on the culture of video games, rather than just their sales.

“We are aiming to become the official pop warner league of esports where GameStop provides fun and unique cultural experiences for player development while preparing the next generation of professional gamers – it doesn’t get any better for amateurs of all ages looking to learn and compete at the highest level,” Frank Hamlin, chief marketing officer for GameStop,  said in a prepared statement at the time.

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Despite being the largest brick-and-mortar video game retailer in the U.S., GameStop has been struggling financially due, in part, to the growth of digital games distribution, coming of game streaming, and online retailers like Amazon. It saw a 5% drop in global holiday sales compared to the same nine-week holiday period in 2017. It also recently sold its Spring Mobile business for $700 million and will use the proceeds to reduce its outstanding debt, repurchase shares, and reinvest in its core gaming and collectibles business. GameStop sought a potential buyout with private firms last year, but ended its efforts in January after failing to secure a deal, sending its shares tumbling more than 27%. It blamed a “lack of available financing on terms that would be commercially acceptable to a prospective acquirer.

In its fourth quarter quarterly report, released Tuesday, GameStop reported that new hardware sales decreased 9.8%, new software sales decreased 7.8%, pre-owned sales declined 21.3%, but that accessories, digital sales, and collectible sales all increased. The company saw a fourth-quarter net income loss of $187.7 million in the quarter.

Total global sales for the 2018 fiscal year decreased by 3.1% to $8.3 billion, GameStop reported.

For the coming fiscal year, the company said it is “embarking on a cost savings and profit improvement initiative designed to strengthen the organization for the future and support long-term improved financial performance and profitability.”

“As we think about 2019 and beyond, we recognize the challenges facing our pre-owned video game business and are prepared to address them as we continue to evolve our business model going forward,” said Rob Lloyd, chief operating officer and chief financial officer, in the financial report. “Importantly, we will continue to leverage our powerful brand to drive growth and, with a new cost savings and profit improvement initiative in place, we will focus our efforts on driving profitability. GameStop is a leader in the video game industry, and we remain committed to capitalizing on our leadership position to discover new and unique ways to meet our loyal customers’ entertainment needs and attract new customers.”

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