Marlon Gomez likes his video-game discs. The 41-year-old shipping worker, shopping recently at a GameStop in Los Angeles, said he can lend them out or bring them to friends’ homes, which he can’t do with a download. He also can sell used games back to the company.
“I’m old-school that way,” Gomez said.
The question for GameStop Corp. is how long gamers such as Gomez will keep visiting stores. The company is the world’s largest specialty retailer of video games, with sales topping $9 billion. Yet suppliers such as Activision Blizzard do more business online today, making discs look obsolete.
Investors are asking, too. As 2015 draws to a close, GameStop is the most shorted stock in the Standard & Poor’s 500 Index, with 46 percent of the available shares borrowed and sold by investors betting that they’ll drop more.
GameStop shares also are among the worst performers in the S&P 500 this quarter and have slumped 27 percent since late November, when sales and profit missed analysts’ estimates.
“GameStop appears to be the big holiday loser as digital and e-commerce increasingly eat into its business,” Evan Wilson, an analyst at Pacific Crest Securities, wrote in a Dec. 28 note to investors.
Benchmark Co.’s Mike Hickey, the only analyst with a sell rating on the stock, likened the company last month to RadioShack and Blockbuster, chains “dislocated by digital adoption.”
GameStop disagrees. The share of games downloaded industrywide is about 20 percent, compared with as much as 30 percent for books and about 45 percent for music and movies, said Matt Hodges, the company’s vice president of investor relations.
“Games are bigger, they cost more, they take more bandwidth” to download, Hodges said. “And they have a residual value.”
The company also is selling more toys and collectibles, such as Star Wars bobbleheads. Such products generated $138 million in fiscal third-quarter sales, or roughly 7 percent of the total.
Management has diversified into other electronics as well, selling mobile phones and products for AT&T and Apple in standalone Cricket, Simply Mac and Spring Mobile stores.
That was a $165 million business in the latest quarter.
And GameStop is tackling digital head on by selling downloads from its website and in stores.
“GameStop has done a lot of really good things to prepare for the digital future,” said Joseph Feldman, an analyst at Telsey Advisory Group, who has a hold rating on the stock.
