Stocks

GameStop…Is The Next Blockbuster

I’m assuming you know the whole story about Blockbuster’s demise due to Netflix.  But in a nutshell, Netflix went digital and ended Blockbuster’s physical distribution reign.

Source

GameStop Corp. operates as a multichannel video game, consumer electronics, and wireless services retailer. The company sells new and pre-owned video game hardware; video game software; pre-owned and value video games; video game accessories, including controllers, gaming headsets, virtual reality products, memory cards, and other add-ons.

Do you see where I’m going with this post?

Second-hand games are a multi- billion dollar market.  Yes, GameStop has most of that market share, but the opportunity breeds competition.   Not only Best Buy sell second-hand games, but now Walmart wants a piece of that pie. Walmart customers can trade in video games for store credit at both Walmart and Sam’s Club stores

But the real kicker, just like rental movies went from physical to digital distribution, the trend in the gaming sector is doing the same. With the increased move of videogame makers distributing games digitally, GameStop is surely going to feel the wraft.

The two game console makers, Microsoft and Sony are salivating at the opportunity to skip the middle man, GameStop.  Microsoft plans to offer digital downloads at significant discount over the physical version. Sony introduced PlayStation Now, an on-demand game-streaming service that promises to deliver old PlayStation games over the Internet.  And because this form of distribution is cheaper, Sony and Microsoft can sale their games at a lower price.  

You have to remember, GameStop is essentially a retail store.  Retail stores have very margins.  So the only way GameStop could compete is to lower their prices, but that would reduce their profits significantly.

So it baffles me that I came across an article this week about Hestia Capital Partners and Permit Capital Enterprise Fund wanting to get involved with GameStop…knowing that ultimately their fate will be the same as Blockbuster.

>GameStop stock was recently down 5% to $11 following the Wednesday night release of a letter from Hestia Capital Partners and Permit Capital Enterprise Fund, who said that combined they own about a 1.3% stake in common shares of GameStop, which was both funds’ largest holding.

>Hestia and Permit argue that the stock’s fair value could be $19, which would put it back near late-2017 levels. FactSet’s average analyst price target is $12. “The company is dramatically undervalued,” the investors’ letter read.

>Now Hestia and Permit say they want to shake up a “stale” board and form one that would push the company to “adapt to disruptive dynamics in its core business.”

Source

My personal opinion is Gamestop is dead to me.  I think in the coming years, the stock price is going to $0.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

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