GME: Slow Bleed in GameStop Stock Resumes

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Shares of GameStop Corp. (NYSE:GME) are in the red again today, continuing a weeklong slump in GameStop stock that has cut into an otherwise good start to 2015.

GME: Slow Bleed in GameStop Stock ContinuesThe cause? The world’s largest retailer of video games reported earnings that were just shy of Wall Street’s expectations, as well as revenues that declined and also missed the mark.

GameStop earnings for the fourth quarter came to $2.15 per share on an adjusted basis — a penny lower than expected, but up from the $1.90 in profits reported in the year-ago period. GME revenues, however, declined from $3.68 billion in Q42013 to $3.48 billion, missing analyst estimates for $3.6 billion.

For the full year, revenues of $9.3 billion and EPS of $3.47 were both higher from 2013 figures, though 2014 numbers were helped by the gaming console upgrade period when Sony Corp (ADR) (NYSE:SNE) released its PlayStation 4 and Microsoft Corporation (NASDAQ:MSFT) released its Xbox One.

While GME’s Friday declines were a rare pothole in an otherwise smooth climb in 2015, the broader trend has been down since GameStop stock hit a peak in 2013. From that point, GME has declined some 30%.

A big issue for GameStop stock is that a console refresh only happens every few years. And worse, with more games being downloaded directly onto consoles — as opposed to being sold as hard copies — the need for a physical location to purchase games (or to sell old ones) is diminishing.

GME management is no doubt aware of this trend, already having faced a scare in 2013 when Microsoft announced a system that would’ve put a limit on sharing games, but then thought better of it.

GameStop also will attempt to diversify its business by acquiring 163 brick-and-mortar locations from bankrupt RadioShack Corporation (OTCMKTS:RSHCQ) and turning them into tech stores selling cell phones and other devices. GameStop will use the cash flow from the existing video game business to help fund the growth initiative.

Again, GME management knows the company’s core money maker eventually will run dry.

But the problem here is that GameStop is replacing RadioShack stores that essentially will do the same thing — a business that bankrupted RadioShack in the first place. It’s unclear why GME thinks the trend will change under its own management.

Bottom Line

GameStop earnings were hardly ugly, but there was little to jazz investors who are staring down a fairly bleak longer-term road.

It’s only a matter of time before GME’s business bleeds out and follows RadioShack to the bankruptcy pile. We’re talking years, not months … but that makes GameStop stock more of a trade than an investment, if nothing else.

As of this writing, Matt Thalman did not hold a position in any of the aforementioned securities. Follow him on Twitter at @mthalman5513.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/gme-gamestop-stock-earnings-slow-bleed/.

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