In the following video, Motley Fool analyst Austin Smith discusses GameStop's (NYSE:GME) chances of survival.
One of the problems facing GameStop is that fewer new games are being sold because there aren't a lot of new devices being made. It's been years since we've seen a big upgrade cycle of PlayStations and Xboxes. As a result, there's been a drop in used-game sales as well, and used games account for 70% of GameStop's earnings.
Even the release of a new console and new titles might not help. We've seen poor sales of Nintendo's (NASDAQOTH:NTDOY) Wii U, and last quarter, Halo and Call of Duty failed to lift GameStop's numbers. And when the next device upgrade cycle does come around, a lot of manufacturers are expected to introduce downloadable content -- which doesn't help GameStop at all. Electronic Arts (NASDAQ:EA) wouldn't want to give a middleman like GameStop a slice of its profits when it could build a relationship with the likes of Microsoft (NASDAQ:MSFT) for downloadable games. Microsoft, in turn, would want to have a relationship with a company such as Activision Blizzard (NASDAQ: ATVI), which already has a strong foothold in the online streaming games space, particularly through its World of Warcraft franchise.
GameStop's same-store sales slid 8.3%, and revenue in the most recent quarter slipped 8%. The company would be more of a value trap than a value play right now.
Austin Smith has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and owns shares of Activision Blizzard, GameStop, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.