Check out the latest GameStop earnings call transcript.

Shares of GameStop (NYSE:GME) remain up in the wake of a report that private equity firms are angling to buy the video game retailer. The Wall Street Journal reported the development at the beginning of the month, saying Sycamore Partners and Apollo Global Management could make a bid for the business as soon as mid-February.

Although GameStop stock is up 25% in January at the time of this writing, investors may want to temper their enthusiasm over just how much a buyer might want to pay for the gamer. The physical video game market has been hurt by and eBay resellers, as well as by the rise of digital gaming. Private equity could buy GameStop, but the price not be what investors hope for. 

Kids playing video game

Image source: Getty Images.

Hammered by digital gaming

This isn't the first time Sycamore and Apollo have been mentioned as possible suitors. Bloomberg reported the two were interested last September, which followed GameStop's earlier announcement it was pursuing strategic initiatives that could include a sale.

In November's third-quarter earnings release, GameStop followed up by saying it "continues to engage with third parties regarding a possible transaction as part of the comprehensive review of strategic and financial alternatives currently being undertaken by the company's board of directors."

GameStop has struggled to respond to the digital divide. It operates more than 7,200 stores worldwide and though it remains profitable on an adjusted basis and posted global sales of $2.1 billion in the most recent quarter as new hardware and software sales enjoyed a nice rebound with double-digit growth, the shift to digital game downloads and streaming has taken its toll, with GameStop's stock tumbling 30% last year.

That resulted in the game retailer taking a nonoperating, noncash intangible asset impairment charge of $587.5 million for the period, which it said was primarily related to goodwill that was triggered by the "sustained decline in the company's share price."

It also noted that while it had experienced a strong kickoff to the Christmas shopping season with strong Black Friday and Cyber Monday sales, it wasn't going to be enough to sustain it for the fourth quarter, and it lowered its guidance for the period and for the full year.

Off on a tangent

To shore up its business, GameStop ended up selling off for $700 million its Spring Mobile division, which owned and operated almost 1,300 AT&T stores.

The gamer had seen the digital wave coming, but chose as its backup plan to branch out into mobile phones, with then-CEO Paul Raines boasting in 2014 that GameStop was the third-largest AT&T dealer in the U.S. It also got into Apple products through its Simply Mac stores and the collectibles market, and established an indie game publishing label called GameTrust, which worked with Insomniac Games in 2016 to introduce Song of the Deep, though you'd be hard-pressed these days to find a mention of it.

These ventures are mostly unrelated to is core business, and while the sale of Spring Mobile has GameStop focusing more attention on its gaming business now, it may be too late.

Key investment takeaway

At least one analyst thinks GameStop could fetch between $17 and $25 a share, a substantial premium to where it trades today even after the recent run-up. Yet a degraded physical-game business, a sprawling retail footprint that faces competition from the biggest e-commerce platforms, a gaming model that bypasses the need for interacting with GameStop at all, physically or digitally, and ancillary operations that have little to do with core operations suggest that private equity might have more subdued monetary targets in mind -- and that investors won't be gaining back as much as they think.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.