Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

GameStop Corp. (GME), Microsoft Corporation (MSFT), Sony Corporation (ADR) (SNE): Questioning Long-Term Sustainability started selling books in ’95, and since then it’s grown into one of the largest e-commerce companies in the world. The online retailer wreaked havoc on the brick-and-mortar book business throughout the early 2000s, eventually helping put one of the largest book stores, Borders, out of business in 2011.

The remaining book retailers, Books-A-Million and Barnes and Noble, are struggling to stay relevant in an industry that is rapidly becoming digitalized. The introduction of e-readers and tablets have all but sealed their fates. Both companies have lost around half of their market capitalization over the last five years.

In thinking about just how disruptive Amazon has been to the book industry, I’m struck by the notion: How long can GameStop Corp. (NYSE:GME) fend off the transition to digital?

GameStop Corp. (NYSE:GME)The video game retailer has enjoyed impressive performance over the last nine months , up more than 160%. Microsoft Corporation (NASDAQ:MSFT) did, however, give GameStop Corp. (NYSE:GME) quite a scare earlier this year by announcing that it would not allow game-sharing with its soon to be released Xbox One game console. GameStop Corp. (NYSE:GME) tanked 20% the week following Microsoft Corporation (NASDAQ:MSFT)’s announcement.

The outrage and backlash by gamers was astounding. And when the other major game console maker, Sony Corporation (ADR) (NYSE:SNE), announced that it would allow game sharing (the opposite of Microsoft Corporation (NASDAQ:MSFT)), Microsoft had no choice but to reverse its policy and apologize to its loyal following. Soon after, the market completely forgot about the incident, and GameStop Corp. (NYSE:GME) was back in investor’s good graces. I think they were too quick to forgive and forget.

For a company that derives half of its gross profits from pre-owned games, GameStop’s retracement to $50 per share seems rather irrational. This is especially true when you think about what the digitizing of video games could ultimately do to GameStop Corp. (NYSE:GME)’s business model — it could effectively render its model nonexistent.

New consoles
The big news that’s overshadowing GameStop’s major headwinds is the upcoming launch of new consoles, Sony Corporation (ADR) (NYSE:SNE)’s Play Station 4 and Microsoft Corporation (NASDAQ:MSFT)’s Xbox One. The coming to market of these consoles should give GameStop’s top line a boost, and so investors are choosing to focus on the near term, rather than the long-term.

The game change for GameStop Corp. (NYSE:GME)? A move to digital. Currently, gamers can only download a few games directly off of the Internet. But if the digital transformation in the book industry is any indicator, I think the rise of digital and downloaded games is just on the horizon. Especially when you throw in the convenience that downloaded games offers.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.