During recessionary economies the video game sector generally does well, yet for some reason retailers such as GameStop (GME) have been tumbling down, while game makers can’t seem to keep up with the blockbuster titles of last year.
While we could blame the poor year for the video game retailer due to the lack of stellar games this year, what about the long-term picture? Although GameStop targets all video game consoles, the concept of the digital revolution, is almost certain to doom normal brick-and-mortar retailers unless they quickly adapt.
Within the latest version update for Microsoft’s Xbox 360, now users can simply pay and download popular games directly onto their console. With Sony’s Playstation 3 utilizing the same concept, you can clearly see this is the new direction that the video game industry is floating towards.
Does this all spell game over for GameStop? This has yet to be determined. It all relies on GameStop’s ability to adapt to changing times. Just like how BlockBuster (BBI) got knocked out by Netflix (NFLX), the same could possibly happen to GameStop.
Sales were down compared to Q2 of last year. However, GameStop’s best second quarter ever was Q2 of 2008. While the retailer reported lower numbers Q2 of this year, it was the second best Q2 of all time. So, it may be that the comparison is unfairly high, but the company did lower its outlook for Q3… not good.
Usually when the fundamentals aren’t the best, perhaps the technical analysis can show us some better insight; however, the picture doesn’t look bright either. GameStop has been on a steady downtrend for over 2 years, and there isn’t much convincing me that it wants to head up higher… especially into the 60′s like it once was.
Overall, what does this all mean? I was just about ready to throw GameStop onto the black list, but it may be a tad premature. The video game industry as a whole is at a crossroads right now. There are many ideas and projects in the pipeline, but nobody has really taken the lead and runaway with it. If GameStop can somehow tweak, adapt, and innovate, then it just may be able to save itself.
Continue watching this stock as a possible bottom feeder play.
Check out a free trend analysis of GameStop.