What happened

GameStop (NYSE:GME) gave up almost all the gains it made yesterday from news of insiders buying shares as its stock tumbled over 13% in early-morning trading on no apparent news.

The video game retailer remains one of the most shorted stocks on the market with almost 99% of its float sold short, which could make its stock subject to large swings.

Man playing video game holding his head

Image source: Getty Images.

So what

It wasn't at all clear that the video game retailer was going to survive even before the coronavirus pandemic set in. Sales have plunged as gaming enthusiasts await the new consoles being introduced later this year from Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE).

The console upgrade cycle could provide a powerful boost to GameStop's business that would offset the potentially fatal transition to online gaming and digital game downloads going on now. The pandemic, however, has heightened the risk to the company. It seemed to recognize that and attempted to keep its stores open when other retailers were ordered closed, but the blowback it received forced it to shut its doors, too.

Now what

The big drop doesn't mean GameStop is a value stock. While its balance sheet will likely let it survive until the new game systems come, it's clear that unless GameStop develops a transformational business model, the digital future of gaming will eventually undermine its viability.