Shares of major video game retailer GameStop (NYSE: GME) took a hit today after one of the company’s top supporters official jumped off the proverbial sinking ship.
As the company continues to fall, with shares having declined by 36 percent in 2019 alone, one-bullish Credit Suisse analyst Seth Sigman cut his target price of the company down significantly.
Reducing his target for Gamestop down from $12 per share to $7, a new low, markets reacted in a wave of bearishness as the last pillar of optimism for the once thriving gaming retailer disappeared.
“GameStop’s ecosystem faces major headwinds, including declining preowned sales/trade-ins, and loyalty program attrition,” Sigman wrote. “We are not saying that GameStop cannot survive, but it will need a more drastic transition of its model and product offering. In the meantime, the decline in cash flow of its core business and potential for higher investments may offset the benefits from cost efficiencies.”
Gamestop, which has recently hired a new CEO in an effort to stop the decline in sales, has flirted with a number of strategies. One of them was to transition into selling more collectibles, while another option could be further closing stores, although previous management has said that they’ve already picked the “low hanging fruit” in regards to cost savings through store closures.
Investors had previously hoped that the company would simply go through with a liquidation or sell itself to another company. Instead of going with that option, management has instead focused on trying to widen profit margins while also further cutting down on unnecessary expenses.
Used games revenues, another staple for Gamestop, has also been falling over the past few years, which when coupled with the drop in physical sales of new games, has been worrying to even the most optimistic investors.
Even back in March, previously neutral analysts cut their ratings on Gamestop, with Bank of America Merrill Lynch analyst Curtis Nagle downgrading the stock to a $9 price target months ago.
Shares of Gamestop fell 6.4 percent in response to the news. Over the past few years, stock prices for Gamestop have steadily plummeted, falling from $45 per share down to their current price range near $8 instead.
This steady decline has come amongst the rise of online game distribution platforms such as Steam, which have become more prominent over time. Retail stores, in contrast, have been struggling as the “retail apocalypse” continues to leave brick-and-mortar outfits struggling to compete with online distribution models.
Gamestop Company Profile
GameStop Corp is a U.S. multichannel video game, consumer electronics, and services retailer. The company operates across Europe, Canada, Australia, and the United States.
GameStop sells new and second-hand video game hardware, physical and digital video game software, and video game accessories, mainly through GameStop, EB Games, and Micromania stores and international e-commerce sites, including www.gamestop.com, www.ebgames.com.au, and www.micromania.fr.
The company has two main business segments: Video game brands and Technology brands. The technology brands segment sells wireless products and services and operates Spring Mobile managed AT&T and Cricket Wireless branded stores, along with the Simply Mac business. – Warrior Trading News