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<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Microsoft (NASDAQ: MSFT) has long been at the forefront of cloud computing and streaming. Recently, Microsoft announced several initiatives to accelerate the move to diskless play. Last announcement of the company to associate with Sony helping to further PlayStation's efforts in streaming is another blow to GameStop's long-term viability as a business. "data-reactid =" 12 ">Microsoft (NASDAQ: MSFT) has long been at the forefront of cloud computing and streaming. Recently, Microsoft announced several initiatives to accelerate the move to diskless play. Last announcement of the company to associate with Sony Helping to reinforce PlayStation's efforts in streaming is another blow to GameStop's long-term viability as a business.
The current situation on GameStop
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "As a video game retailer, is beaten against several negative trends affecting his business. First, consumers are buying more and more from large online retailers like Amazon instead of at traditional retailers. Secondly, video game software is increasingly being sold as downloadable content directly to a computer or video game console, eliminating middlemen such as GameStop. "Data-reactid =" 14 "> As a video game retailer, GameStop is fighting several negative trends: First, consumers are buying more and more from large online retailers like Amazon instead of at traditional retailers. Second, video game software is increasingly being sold as downloadable content directly to a computer or video game console, eliminating intermediaries such as GameStop.
As a result of these trends, GameStop saw its sales and profits fall rapidly. The company continued to post a weakness when it released its financial results for 2018. Its total revenue for 2018 decreased by 3.1% to $ 8.3 billion and was net income from continuing operations decreased by 22.9%. These recent data only prolong the long-term downward trend of the company.
GME revenue graph (annual)
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "GME Revenue (annual) given by YCharts"data-reactid =" 30 "> GME Revenue Data (annuals) by YCharts
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "On the call of its fourth quarter results 2018, GameStop attributed its drop in sales primarily to "a decline in second-hand video game sales" and "new software sales". GameStop will experience a decline in new and used game sales as more and more people download games instead of buying them in-store. The company has developed an extremely profitable business of buying and reselling used game discs, but this business model is becoming obsolete. "Data-reactid =" 31 "> In its fourth quarter earnings call for 2018, GameStop attributed its drop in sales primarily to" a decrease in second-hand video game sales "and" sales of new software . "GameStop will see a drop in new and used game sales as more people download games instead of buying them in stores." The company has built an extremely profitable buying business and resale of used game discs, but this business model is becoming obsolete.
Microsoft accelerates the move to cloud computing
Microsoft has come a long way since launching its first Xbox in 2001. The company pioneered online gaming with its Xbox Live service, and with Xbox 360, Microsoft has allowed users to download multiple game titles directly. video.
<p class = "canvas-canvas canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Microsoft even pushes the game envelope on the cloud In May, the company launched a diskless version of the Xbox In Europe, we call the Xbox One S. The diskless Xbox comes with some pre-installed games and a 1 terabyte hard drive that can be used to download games purchased online. "data-reactid =" 34 "> In May, the company launched a diskless version of the Xbox in Europe, called Xbox One S. The diskless Xbox comes with a few pre-installed games and a 1 terabyte hard drive that can be used to download games purchased online.
<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The Xbox One S is just a step in Microsoft's Strategy on the games in the cloud.The company has also developed its highly anticipated XCloud Game Broadcast Service. Although the project still has some way to go before it can be marketed, it allows streaming of games on all devices, including mobile phones and computers with an Internet browser, along with the Internet. Help a game controller. This would eliminate many of the barriers associated with high-end gaming including the need to buy gaming consoles. "Data-reactid =" 35 "> The Xbox One S It's just one step in Microsoft's cloud gaming strategy. The company has also developed its highly anticipated xCloud gaming streaming service, which still has a long way to go before it can be marketed. but it allows streaming of games on any device, including mobile phones and PCs with an internet browser, with the help of a game controller. This would eliminate many of the obstacles associated with high-end games, including need to buy game consoles.
A person playing a video game on a tablet
A demonstration of the xCloud gaming service on a tablet. Source of the image: Microsoft.
<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "More recently, Microsoft announced a cloud gaming partnership with Sony the two rivals will jointly develop new cloud solutions for game developers. The partnership will leverage Microsoft's Azure cloud computing platform to facilitate streaming of video games on hardware platforms. "Data-reactid =" 62 "> More recently, Microsoft announced a cloud gaming partnership with Sony the two rivals will jointly develop new cloud solutions for game developers. The partnership will leverage Microsoft's Azure cloud computing platform to facilitate streaming of video games on hardware platforms.
<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Microsoft and Sony are not the only companies to offer the games on the cloud. Google& nbsp; unveiled its Stadia cloud streaming service, and several other companies have reportedly been working on streaming projects. These developments do not augur good chances for GameStop and should leave investors wondering if GameStop will have a role to play in the video game market of the future. "Data-reactid =" 63 "> Microsoft and Sony are not the only ones to offer the game to the players cloud, alphabet Google revealed its Stadia cloud streaming service, and several other companies have been working on streaming projects. These developments do not bode well for GameStop and should leave investors wondering if GameStop will have a role to play in the video game market of the future.
The long-term commercial viability of GameStop
GameStop will have to adapt to the evolution of the video game industry if it does not want to become like Blockbuster. To his credit, the company has made several changes to its business model to see if anything will gain ground.
An attempt to reinvent itself has been to enter the mobile phone sector. Through a series of acquisitions, GameStop has become the largest operator of AT & T wireless service stores. However, the strategy did not generate strong financial returns after the change in reseller compensation structure by AT & T. This year, GameStop abandoned its mobile strategy and sold its wireless store business for $ 700 million.
Another tactic was to start selling collectibles related to video game characters. GameStop now operates more than 100 stores dedicated to the sale of collectibles and has enjoyed moderate success in this area. In 2018, collectibles revenue increased 8.5% to $ 707.5 million. The problem is that with the company's total $ 8 billion GameStop-based revenue, the collectibles sector is too small to move the needle for now.
<p class = "web-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "More recently, GameStop announced its intention to embark on the sector of esports. GameStop plans to sponsor live video games competitions and organize events in its stores in the hopes of selling merchandise and driving traffic in the stores. In addition to the competitions, the company will organize clinics where aspiring players will be able to train with coaches to improve their skills. The vision is to create a new community around esports that can extend the brand of the company beyond the mere sale of video game titles. This strategy is certainly interesting, but it remains to be seen whether GameStop will be able to gain ground in this new market. "Data-reactid =" 70 "> More recently, GameStop has announced its intention to enter the sports industry GameStop plans to sponsor live video games competitions and organize events in its stores hoping to be able to sell goods and traffic in stores. In addition to competitions, the company will also have clinics where aspiring players can train with coaches to improve their skills. an interesting strategy, but it remains to be seen whether GameStop will be able to gain ground in this new market.
For now, GameStop still has a significant – albeit decreasing – business selling new and used video game hardware and software. The advent of streaming will accelerate the decline of its historical business. GameStop will have to find new sources of revenue to compensate for lost earnings.
Look to the front
GameStop has been placed in an almost impossible situation, in which technological change is disrupting its once lucrative business. Microsoft is leading the charge for cloud computing and streaming, and is even positioning itself to leverage its cloud computing capabilities to fuel the ambitions of streaming other platforms. of play
Unfortunately for GameStop, the story has not been tender with the disturbances. If GameStop wants to avoid being the next Blockbuster, it will have to quickly adapt and find new sources of revenue. To his credit, the company has taken interesting initiatives to experiment with new types of merchandise such as mobile phones and collectibles. In addition, the ambition to be an actor in the field of esports is a creative use of GameStop's commercial footprint. It will be interesting to see if any of these initiatives materialize.
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More from The Motley Fool "data-reactid =" 75 "> More from The Motley Fool
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "John Mackey, CEO of Whole Foods Market, an affiliate of Amazon, is a board member of The Motley Fool. Suzanne Frey, an executive member of Alphabet, is a board member of The Motley Fool. Teresa Kersten, a LinkedIn employee, a subsidiary of Microsoft, is a board member of The Motley Fool. Luis Sanchez has no position in any of the actions mentioned. Motley Fool owns shares and recommends Alphabet (A Shares), Alphabet (C Shares), Amazon and Microsoft. The Motley Fool owns GameStop shares. The Motley Fool has a disclosure policy."data-reactid =" 83 ">John Mackey, CEO of Whole Foods Market, an affiliate of Amazon, is a board member of The Motley Fool. Suzanne Frey, an executive member of Alphabet, is a board member of The Motley Fool. Teresa Kersten, a LinkedIn employee, a subsidiary of Microsoft, is a board member of The Motley Fool. Luis Sanchez has no position in any of the mentioned actions. Motley Fool owns shares and recommends Alphabet (A Shares), Alphabet (C Shares), Amazon and Microsoft. The Motley Fool owns GameStop shares. Motley Fool has a disclosure policy.
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