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Why GameStop Stock Plunged 39% in January

By Royston Yang - Updated Feb 4, 2020 at 9:48AM

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A combination of lower holiday sales and lowered guidance for full-year revenue hammered shares last month.

What happened

GameStop (GME -2.60%) saw its stock plunge 39.1% last month to just below $4, according to data from S&P Global Market Intelligence.

The stock has been in continuous decline since November 2015, when it hit a peak of $46.82. The last five years have been nothing short of disastrous for the company as it tries ways to turn around. But with no break in the flow of bad news, investors will probably begin to wonder if the company even qualifies as a value stock anymore.

Video Game Console

Image source: Getty Images.

So what

GameStop announced disastrous holiday sales results in mid-January, with a 27.5% year-over-year decline compared with the holiday season a year ago. Comparable store sales didn't fare much better, slumping 24.7%, and the company said that these trends are indicative of the challenges facing the video game industry.

With more games being sold directly through mobile devices and laptops, there seems to be less relevance for brick-and-mortar gaming merchandise retailers. The boom in esports means more people are logging onto their phones and laptops and paying to watch people battle, rather than stepping into an antiquated 1980s-era video game shop. This does not bode well for GameStop.

Now what

CEO George Sherman has articulated a turnaround plan but acknowledged that the pain will continue for quite a while as the company enters the final commoditized stages of Microsoft's and Sony's console cycles. New generation consoles will only be launched much later, and in the meantime, GameStop plans to shutter around 230 to 250 stores.

Unless GameStop radically overhauls its business model, the declines look set to continue. Even with a grand plan to "optimize" the business, the CEO should realize that he is ultimately fighting a losing battle as brick-and-mortar stores lose popularity among the gaming community.

Royston Yang has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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