Doing its best to turn a liability into an asset, shares of GameStop (NYSE:GME) soared last week after talking up its prospects as an unlikely play in the Pokemon Go frenzy. CEO J. Paul Raines was on CNBC, revealing that sales had doubled at stores that also serve as virtual gyms and PokeStops in the game.
GameStop is talking a good game. It has a page set up to make it easier for Pokemon Go players to see which of its more than 7,000 stores also double as hotspots for virtual items and battle training in the augmented reality game that's sweeping the nation. Nearly 200 of its stores also happen to be designated as PokeStops with more than 30 locations also doubling as Pokemon Gyms.
The chain is also dropping lure modules -- a virtual item that once executed attracts Pokemon to the area for 30 minutes -- at some of its stores, hoping that attracting mobile app players will inspire merchandise purchases in the real world.
Clicking the "Evolve" tab to see what happens
A hot mobile app would seem to be toxic for a small-box retailer of new and used video games and gear. If you're glued to Pokemon Go you're not going to necessarily be interested in playing console games. There will be billions to be made by the time the Pokemon Go craze is over, but that money is going to game developer Niantic Labs, Nintendo (NASDAQOTH:NTDOY), and the iOS and Android app marketplaces.
The beauty of mobile apps is in the digital delivery of games and in-game transactions, cutting out the middlemen (including GameStop). The chain argues that it can still cash in by selling Pokemon collectibles. It will also naturally be a hub for Nintendo's Pokemon Moon and Pokemon Sun when the two games hit stores for Nintendo 3DS handheld gaming systems in November.
It remains to be seen if Pokemon Go players will hop back on their handheld gaming devices, but if you're GameStop you may as well play the hot hand that you see being dealt.
Hoping the "Revive" item does the trick here
GameStop can use the help. Comps plunged 6.2% in its latest quarter with net income taking an even bigger hit. The retailer used to be able to use aggressive stock buybacks to prop up profits on a per-share basis, but it wasn't enough to deliver year-over-year improvement this time around.
It can point to potential holiday winners including cheaper consoles, new systems, hot software, and Sony's (NYSE:SNE) PlayStation VR system, or PSVR for short. Sony's virtual reality platform hits stores in October, and Sony worked closely with GameStop on preorders that quickly sold out earlier this year.
Sony's PSVR has a shot to make waves here as the cheapest of the most prolific VR platforms hitting the market this year. The ability of PSVR to work seamlessly with the tens of millions of PS4 systems already in homes gives it a clear path to lead the nascent niche. Once the Pokemon Go craze passes -- or once gamers realize that they can just stand outside of the store to collect their PokeStop goodies -- GameStop will need to be ready with something new.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool has the following options: short October 2016 $28 puts on GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.