GameStop's Poor Performance Causes Shares to Slide

GameStop is not having the best day. The company today reported earnings for its latest quarter, and the retailer's results came in at the low end of what it had previously forecast. This in turn has triggered the company's share value to tumble by more than 5.5 percent, though stock value has been climbing back a.

For the quarter ended October 31, GameStop revenue and profit fell compared to the same period last year, with new hardware (-20.4 percent) and new software (-9.3 percent) falling substantially. Downward year-over-year changes in the industry is not unheard of nor is it always a cause for alarm. What might be more concerning for investors is that major games like Halo 5: Guardians, Assassin's Creed Syndicate, and Star Wars Battlefront all performed below GameStop's expectations.

Management didn't have a great answer for why this was, which might also explain GameStop's falling share price. One thing that might be particularly spooky to investors is the claims that GameStop missed its sales targets for Halo 5 specifically because digital sales--which GameStop sees no revenue from--are estimated to be as high as 50 percent. That's according to one analyst.

GameStop doesn't necessarily agree. It said today during an earnings call that, after speaking with publishers, it had no reason to believe digital sales for any recent big game was inordinately high.

"We are in full understanding and full belief that there is no game that was launched this quarter that was materially above a normal digital percent at launch," GameStop president Tony Bartel explained.

A digital-only future would presumably come at a detriment to GameStop. But that's not likely to happen anytime soon, as retailers like EA and Ubisoft report that digital sales currently only make up about 20 percent of copies sold for average games. However, EA recently said it expects this figure to grow to 40 percent or higher in the next 3-5 years.

GameStop does participate somewhat in the digital side of things, as it sells add-on content at the point of sale alongside physical games. This has been a particuarly successful endeavor for GameStop, as the company's digital sales in the latest quarter jumped by more than 8 percent to $228.6 million, fueled in part by Destiny: The Taken King.

It's also worth mentioning that GameStop is no longer a video game-only company. In fact, the company's official description does not include the word video game. In its press releases, GameStop calls itself a "family of specialty retail brands that make the most popular technologies affordable and simple."

GameStop recently acquired ThinkGeek and also runs other non-gaming efforts like Spring Mobile and Simply Mac stores across the United States. In the past three months, GameStop opened or acquired 105 of the Technology brand stores, while it closed a number of GameStop stores during the same period.

Things may not have looked great for GameStop in its latest quarter, but we'll have a better idea of how the company is faring three months from now when it reports sales for the all-important holiday period. This officially kicks off this week with GameStop's pre-Black Friday deals and then Black Friday proper deals. GameStop said today that it expects the holiday quarter to account for about 60 percent of its annual revenue.

Finally, GameStop said today that Battlefront sales are likely to rebound and eventually hit the targets it modeled for the sci-fi shooter as buzz continues to build around Star Wars: The Force Awakens.