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A buyer is heading to a GameStop store in Ottawa, IL, April 1, 2019. (Daniel Acker / Bloomberg News)
Shares of video game retailer GameStop hit a crater Wednesday after the company announced a sharp drop in sales on game consoles, software and hardware, highlighting the fundamental challenges of the sales sector physical media digital media past.
GameStop's overall sales fell to $ 1.5 billion in the first quarter of 2019, up from $ 1.8 billion for the same period last year, the company said in its earnings report on Tuesday, revealing a fall of about 13%. The net income of the company has been impacted even more, recording a fall of about 78%.
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Some of the immediate problems with GameStop are cyclical. Two of the current major consoles, the Sony PlayStation 4 and Microsoft's Xbox One, were launched in 2013 and the two technology companies are expected to launch their next-generation platforms next year. GameStop, which saw its hardware sales drop by 35% this quarter, explained that much of the decline came from consumer expectations for the next generation of consoles, with the gaming market being in a transition period during which old platforms age but the next step has not happened.
But the game retailer also faces long-term challenges. Customers are increasingly choosing to download video games on the web rather than buying disc games. This change in consumer behavior is weighing on GameStop's used-game sales, as more consumers no longer have physical games on which to trade games and fewer customers want to buy them . The company said its used vehicle sales had declined more than 20% this quarter.
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Perhaps even more troubling for GameStop is the explosion of online and mobile games that exists outside the world of traditional console. Played on smartphones, tablets and web browsers, these games do not require the purchase of additional hardware. In addition, many bold gaming initiatives, such as Google, Amazon and Apple, are trying to remove consoles and develop a cloud-based game model that looks like Netflix. (The founder and CEO of Amazon, Jeff Bezos, owns the Washington Post.)
In its 2018 annual report, GameStop warned shareholders that if the preference for downloading games increased and if technological advances allowed people to access games by other means at home, "customers can no longer choose to buy video games in our stores ".
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The CEO of GameStop, George Sherman, said Tuesday during a call on the results that the company had hired a consulting firm to help it improve its business and develop new sources of revenue. "We have work to do to evolve and transform," he said. Sherman pointed to the development of immersive gaming experiences in stores and the deployment of his loyalty program to connect customers to game publishers as potential ways to boost his business.
GameStop, which operates more than 5,700 stores in 14 countries, said it expects total sales to fall by 5 to 10 percent over the 2019 fiscal year. Eliminate the quarterly dividend paid to investors, saving $ 157 million a year. year. The funds will be used to repay debt and invest in initiatives, the company said.
Investors hammered the shares Wednesday after the company released its latest results. GameStop shares closed at $ 5.04, down about 36%.
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