My warnings of a problematic video game industry are gradually being validated. Don't take it from me. Take it from suddenly jittery bulls and retreating developers.
Goldman Sachs (NYSE:GS) downgraded GameStop (NYSE:GME) this morning, taking it off the firm's "conviction buy" list. The move comes a day after the video game retailer reiterated its guidance for its most recent quarter.
Goldman analyst Robert Higginbotham fears that industry sales data for the month of October -- scheduled to be released by industry watcher NPD Group tomorrow -- will be far bleaker than the estimate calling for a 9% to 11% year-over-year decline.
Lower console prices and a busy slate of releases -- championed by Viacom's (NYSE:VIA) The Beatles: Rock Band -- may have given data for September a temporary pop, but we're likely looking at an industry that has suffered year-over-year dips in seven of the past eight months.
It's not going to get a lot better at this point, and even the industry knows it.
On Monday, Electronic Arts (NASDAQ:ERTS) announced poor operating results that shocked few. However, it also revealed that it will be letting go of 1,500 employees as it pares down its product portfolio. In other words, EA will be putting out fewer games on a smaller payroll. The firings will deliver $100 million in annual cost savings, but what about the top line? Perhaps more importantly, what does it say about EA's perspective on where the industry is heading?
I get it. There's a lot of favorable buzz right now with yesterday's release of Activision Blizzard's (NASDAQ:ATVI) Call of Duty: Modern Warfare 2. All three video game consoles are a lot cheaper heading into the 2009 holiday shopping season than they were a year ago. Enjoy the optimism because it's likely to go away once NPD Group drops the verdict on what was surely a lackluster October.
Despite GameStop's reiterated guidance, Goldman Sachs doesn't want to be on the wrong side of a disappointing industry report. Despite its return to profitability, EA is staging a tactical retreat.
It's not pretty, gamers.
Where do you see the future of gaming? Did it peak for keeps? Let us know in the comment box below.
