GameStop Tanks: Winners And Losers

Jan. 16, 2014 4:50 PM ETGameStop Corp. (GME)ATVI, EA, NTDOY, TTWO2 Comments
Kevin Berk profile picture
Kevin Berk

On Tuesday, GameStop (NYSE:GME) dropped sharply after reporting revenue growth but a big miss on earnings. The primary driver was much higher sales of consoles thanks to Xbox One and PlayStation 4 and big drop in new software sales. Since the consoles have much lower margins for GameStop, the earnings missed even with the higher sales. Clearly, missed earnings are bad for GameStop but I think the market has bigger longer term concerns about GameStop that this report brought into sharper relief. I believe that this report helps clarify winners and losers in the video game space.

Losers: GameStop, physical retail, Nintendo (OTCPK:NTDOY), video game publishers (short term)

Winners: digital distribution, Sony (SNE), Microsoft (MSFT), Amazon (AMZN), video game publishers (medium / long term)

GameStop's Software Woes

GameStop blamed lower sales of previous generation games from Xbox 360 and PS3. There are three potential reasons for GameStop's abysmal software sales.

1) Industry wide problem? Are people buying fewer games across the industry? Probably somewhat for older consoles. The folks that bought new consoles would want to buy games for their new machine. Clearly, there is some elasticity of demand in the short run. If people have a budget for their holiday shopping, new consoles took a larger share across the industry. However, I believe GameStop's numbers overstate this effect due to the other two reasons.

2) Shift to digital? People are buying fewer games at physical retailers and more digitally. All the publishers have reported rising digital sales in recent years as options for buying digital have become easier and better marketed. You can buy games on the major platforms, direct from publishers as well as through Steam. You can buy a digital code on Amazon for many games. GameStop is participating in this shift but is clearly losing market share here. They don't have the

This article was written by

Kevin Berk profile picture
Kevin Berk is a strategic investor, entrepreneur and an expert in online media. He helped develop online ventures at CitySearch and Disney, and was instrumental in the merger of TicketMaster and CitySearch and the combined company's IPO. (It is now owned by IACI.) He founded in the online search and directory space. He then led the advertiser products team at LookSmart before co-founding online job search company YorZ and writing his blog, Berk Sure Has a Way ( Kevin combines an insider's understanding of online content, search and advertising with an eye for stocks and a clear writing style.You can follow him on Twitter:!/kevinberk

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