12 Feb 2021
Posted in Business Fundamentals
GameStop unlikely to showcase largescale gains in 2021 despite sentiment growth in Q4 2020
GlobalData’s Filing Analytics platform found that GameStop’s earning transcript sentiment score rose by around 9.7% in Q4 2020 compared to Q3 2020. Starting mid-January 2021, the company’s stock grew almost 100x until 27 January 2021. However, most of its stock gains were lost by the end of the first week of February 2021. Notwithstanding sentiment growth in Q4 2020, GameStop is unlikely to showcase largescale gains in 2021 with the rise in cloud gaming and online sales of gaming products.
Rinaldo Pereira, Senior Business Fundamentals Analyst at GlobalData, says: “The management’s positivity drove the company’s sentiment rise. However, analyst sentiments have declined since Q3 2020. The video game retailer has also struggled with customer loyalty. Mentions of ‘customer loyalty’ in all filings have been lower in 2019 and 2020 compared to 2018. Even before the COVID-19 pandemic, mentions of ‘loss’ were the highest in 2019, with discussions around profit declining since 2018.”
Notably, mentions of omnichannel more than tripled in 2020 in GameStop’s filings compared to 2019, when the company announced it was setting up a partnership with Microsoft in a bid to capitalize on the e-commerce boom and drive omnichannel sales.
The rise of digital downloads and cloud gaming is likely to impact GameStop’s physical game revenue stream. GlobalData expects the cloud gaming market** to reach $30bn by 2030, growing at a compound annual growth rate (CAGR) of 40% between 2020 and 2030.
Rupantar Guha, Associate Project Manager for Thematic Research as GlobalData, says: “The video games industry is in the throes of a huge transformation from a product-oriented business to an as-a-service model. Widespread internet access has allowed gamers worldwide to access subscription-based services and downloadable games content. This has led to the development of disc-free consoles, which bypass physical game retailers. In the future, the popularity of cloud gaming, which delivers games directly to users without the need to download files on to devices or purchase physical media, will further exacerbate the challenges for game retailers. The physical games market is in a terminal decline, and games retailers like GameStop are facing an existential crisis.”
Pereira concludes: “GameStop’s omnichannel strategy is a step in the right direction, yet there is cut-throat competition in the e-commerce space with the likes of Amazon. Despite the bleak outlook, omnichannel and esports continue to be bright spots for GameStop. It will be key for the company to gain back customer loyalty through its online push.”
*Analyst sentiment scores are calculated for statements by analysts in the Q&A session of the earnings call transcript
**GlobalData’s Cloud Gaming – Thematic Research report, published February 2021