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Why GameStop Stock Skyrocketed Today

By Evan Niu, CFA – Oct 8, 2020 at 3:33PM

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The video game retailer announced a new strategic partnership with Microsoft.

What happened

Shares of GameStop (GME 1.49%) have skyrocketed today, up by 25% as of 3:10 p.m. EDT, after the company announced a strategic partnership with Microsoft (MSFT -0.18%). The stock was halted briefly ahead of the news.

So what

GameStop will accelerate its digital transformation by leveraging Microsoft's cloud-based offerings, including the Dynamics 365 customer relationship management (CRM) and enterprise resource planning (ERP) services. The video game retailer hopes to streamline its operations by providing its employees greater access to data using Microsoft's cloud platform. GameStop will also outfit its retail stores with Surface devices, increasing the mobility of workers within a store, and will deploy Microsoft 365 and Microsoft Teams for productivity and collaboration.

Video game controller

Image source: Getty Images.

"This is an exciting day at GameStop as we announce the advancement of an important partnership that capitalizes on the power of our operating platform and significant market share in gaming to accelerate our digital transformation; drive incremental revenue streams; and over time, further monetize the digital world of gaming," GameStop CEO George Sherman said in a statement.

Now what

The partnership seems like more of a win for Microsoft than GameStop. Adopting Microsoft's suite of services does not address long-term concerns around the broad shift to digital distribution. GameStop is an important retail partner for game console makers, but both Microsoft and Sony are releasing digital-only versions of their respective next-generation consoles later this year, removing the optical disc drive and leaning exclusively on digital downloads.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft. The Motley Fool recommends GameStop and recommends the following options: short January 2021 $115 calls on Microsoft and long January 2021 $85 calls on Microsoft. The Motley Fool has a disclosure policy.

Stocks Mentioned

GameStop Stock Quote
GameStop
GME
$26.60 (1.49%) $0.39
Microsoft Stock Quote
Microsoft
MSFT
$254.69 (-0.18%) $0.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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