Does GameStop Corp. (NYSE:GME) still have a working business model? That’s the most-pressing question on the minds of GME stock holders and pundits alike.
The largest dedicated retailer of video games and gaming consoles has seen its share price punished some 20% over the past year. That trails not only the 16% rise in the S&P 500 index, but also the 7.7% decline in the SPDR S&P Retail ETF (NYSEARCA:XRT) during that span.
With earnings on tap for Thursday night, GME stock investors need to think long and hard about what they’re holding.
Not Playing the Waiting Game
GameStop’s woes have been mild this year, with shares off 2.5% for the year-to-date. But its woes over the longer-term have driven the yield on GME stock to 6.2% — about three times what the average S&P 500 stock yields.
Still, investors must reconcile whether the dividend, despite its robust status, can offset the declines GME stock may suffer in the quarters ahead.
The company’s business has taken a massive hit as video game console content from the likes of Microsoft Corporation’s (NASDAQ:MSFT) Xbox and the PlayStation from Sony Corp (ADR) (NYSE:SNE) shift to direct digital.
Meanwhile, when GameStop is not being hurt from online content, it still has to face the rapid rise in mobile games. This combination has caused GME revenue to decline in three straight quarters.
In other words, GameStop, which has seen fewer customers enter its stores, is heavy reliant upon the hardcore gamer — those who prefer traditional discs as opposed direct media. How bad is the trend?
Investors will find out Thursday when the company reports fourth-quarter earnings.
While GME stock might look depressed, there is no sign that a turnaround is imminent. And investors largely have shown they’re not willing to wait for the company to turn things around.