Following a flat third quarter, video-game retailer GameStop (NYSE:GME) needed a big Christmas. The company has spent the past year watching revenue decline as video game console sales have fallen.
The past holiday season also represented what may prove to be the last year of the company’s current business model — one that relies on the resale of used physical game discs for 31.4% of revenue — as customers turn to digital distribution platforms like Apple’s (NASDAQ:AAPL) App Store for video games.
Based on the company’s reported holiday-season results released Thursday, Christmas was good, but it was far from the blowout needed to completely redeem a turbulent and troubling 2010.
Total sales for the nine-week holiday period that ended on New Year’s Day rose 5.4% to $3.02 billion. Any growth is good, especially considering how turbulence in the video game industry took down GameStop’s stock to below $20 for much of the year (The stock was recently off more than 4% to about $21). Still, that’s hardly matching the momentum the company was enjoying in 2008, when it was seeing year-over-year growth of 22.3% during the holiday period.
Game hardware sales rose 7.4% at GameStop, due largely to Microsoft’s (NASDAQ:MSFT) hands-free motion controller for the Xbox 360, Kinect. The company also cited major November game releases like Ubisoft’s Assassin’s Creed: Brotherhood and Activision Blizzard’s (NASDAQ:ATVI) Call of Duty: Black Ops as being integral in driving software sales up 3.3% for the period year-on-year.
GameStop’s only segment to see double-digit growth during the holidays was PC game sales, which were up 15.9%. However, that growth won’t be maintained into the year as the growth mostly came from the December release of ATVI’s World of Warcraft: Cataclysm online role-playing game.
Modest growth may convince shareholders to hold on for the coming year with the promise of new hardware like Nintendo’s (PINK:NTDOY) Nintendo 3DS portable game device luring customers into stores. But the most troubling statistic in GameStop’s report is that used-product sales grew by only 1.7% during the period, meaning that the company’s one-time cash cow is indeed a fading segment.
Given that GameStop made no mention whatsoever of revenue generated by its digital distribution initiatives like gaming website Kongregate, it seems like 2011 is going to end up just as shaky as 2010 for the retailer.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.
