Gamestop is one of the biggest and most well-known video game retailers in the world. Allowing gamers to buy, trade, and sell games, everyone has come accustomed to the retailer’s “unique” business model. But is that model actually helping to sustain its business? As of right now, that may not be the case, as the company’s stock has dropped from just over $15 a share in January 2019 just over $5 dollars this month.
In an article by Business Insider, the company’s decline is outlined with problems beginning during the current console generation in 2013. Wedbush analyst Michael Pachter stated in an interview with Business Insider, “Downloads became a thing and Gamestop’s business declined. They were just kind of oblivious to it.”
The “all-digital future” in the gaming space is always a concern for physical retailers. However, where things get really troublesome for GameStop had nothing to do with video games or digital downloads, but instead smartphones.
In that same year, GameStop started buying Spring Mobile and AT&T storefronts. By 2016, the game retailer operated a little under 1,500 mobile storefronts under the Spring Mobile banner. Those stores were expected to turn a huge profit, with each store to earn $1 million. That did not happen. Before acquiring the storefronts, GameStop was in a good position with zero debt. After, Spring Mobile sold for $700 million, leaving the retailer in debt.
“It turned into a complete disaster,” Pachter explains about GameStop’s smartphone initiative. “These stores were going to do a million apiece… you’re looking for $1.5 billion in revenue and double-digit margins. So $150, $200 million profit, and I think they got to $80. They were just never even close.”
In 2018, GameStop stock was at about $16 a share. At this point, the retailer was looking for private-equity groups interested in purchasing the company. Unfortunately for GameStop, that did not happen, leading to a significant drop in price for the retailer’s stock. In January 2019 alone, the price for shares dropped from roughly $15 to about $10. Since that drop and as of the time of this writing, share prices are at $5.36.
This is not the first sign of trouble for the huge video game retailer. Back in April, GameStop announced it’s full-year financial results for 2018, posting a $673 million loss. While this doesn’t mean GameStop can’t bounce back, especially with new consoles on the horizon from both Sony and Microsoft, it certainly looks like the retailer is in a troublesome position.