The famous video game retailer GameStop (NYSE:GME) is facing some hard times as its stocks have toppled by 20%. Although the retailer is one of the top suppliers for famous companies like Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) but due to the increasing trend towards digital media the company is facing lesser demands.
GameStop’s (NYSE:GME) major sales are based on used gaming products. In fact these products make up about 2/3rd of the company’s total sales which in turn generates 50% of GameStop’s (NYSE:GME) gross profit. The reason can be that the used products have always been an easy object for the company and they always pay-off by a much greater margin.
Another threat to the company’s (NYSE:GME) used games based economy is the transition from physical media to digital media. The PC gaming market has shifted towards the digital side i.e. almost 90% of the sales worldwide are the result of downloads. However, the market for gaming consoles may take some time to shift, right now only 20% sales are done digitally.
This transition has resulted mainly because downloading seems a lot easier and convenient than the traditional discs. GameStop’s (NYSE:GME) used gaming market has some real risks from game developers and console manufacturers. The used gaming market makes annual revenue of $2 billion, however, this 2 billion means nothing for the developers.
The console makers can collect licensing fees for new games but not a single cent from used games. For example, Activision Blizzard (NASDAQ:ATVI) which happens to be the biggest video games publisher makes some 4.6 billion dollars, if the used gaming market was not there those 2 billion would definitely strengthen the company’s annual profit. Used gaming products hold a keen position for GameStop (NYSE:GME) but the ongoing decline in their sales can spell danger for a company whose sales are used products only.
GameStop (NYSE:GME) has been working on its strategy for quite some time and has invested on several other fields besides gaming. The company sells AT&T (NYSE:T) devices and network plans in more than 200 locations across the country. In fact the company (NYSE:GME) has planned to join hands with Simply Mac (an Apple Inc. (NASDAQ:APPL) dedicated store) in order to increase their outlets in the country, besides this GameStop is also operating some 37 stores based on the cricket network which sells AT&T network plans and cell phones. This however, makes up only a small fraction of the company’s (NYSE:GME) total revenue which is about 6.5% only.
Experts believe the stocks to go up in the coming year; nearly $4.39 a share from $3.70 and GameStop (NYSE:GME) seems to be inexpensive at this moment, working at only 12 times trailing earnings. So we expect to observe some interesting figures in the following session. Still there are threats for the used gaming markets to go down sooner or later but experts believe that this down fall will take some time however to take its effect.