Has GameStop Corp. (GME) Become the Perfect Stock?

Page 2 of 2

The video game industry has had a lot of trouble recently, and with GameStop’s reliance on a healthy video game market, the retailer hasn’t had the most promising financial results. Early last month, the company said that comparable-store sales fell 4.4% in November and December, traditionally hot months for the business. Given that Activision Blizzard, Inc. (NASDAQ:ATVI) set new sales records with its “Call of Duty: Black Ops II” release and that Nintendo had a new game console available, the fact that GameStop nevertheless saw hardware and software sales fall substantially was particularly disappointing.

But the bigger concern has to come from general weakness among the game makers that supply GameStop with products to sell. Electronic Arts Inc. (NASDAQ:EA) posted much lower revenue in its most recent quarter, with particular weakness in physical game sales as the company was able to boost digital revenue modestly. Meanwhile, Take-Two Interactive Software, Inc.(NASDAQ:TTWO) pushed back its “Grand Theft Auto V” release to this fall, months beyond where investors were hoping to see the game.

Moreover, the digital distribution trend threatens to cut GameStop out entirely. As a middleman, GameStop relies on physical games to resell — something that could disappear if game makers are able to sell directly to customers without a retailer go-between.

For GameStop to improve, it needs to find a way to keep up with changing dynamics in the video game industry. Otherwise, it could be doomed to flounder as an obsolete antique.

The article Has GameStop Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and Take-Two Interactive. The Motley Fool owns shares of Activision Blizzard and GameStop.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2