Categories Analysis, Technology

GameStop takes baby steps on the road to recovery

GameStop Corp. (NASDAQ: GME) stock has risen over 40% in the past month as investors believed the video game retailer has started recovering from the debacle. However, the road to recovery is expected to take time as the company has just started on store closure and management change.

Over the past three quarters, the company has been struggling as growths in the video game accessories and collectible was not sufficient to offset the weakness in other divisions. Also, the delayed launch of the next-generation consoles from Sony (NYSE: SNE) and Microsoft (NASDAQ: MSFT) remained a major concern in the hardware segment. This is likely to continue until late 2020.

The market analysts believe that the stock is likely to spike in the short term driven by the pursuit of going private or buying back borrowed securities to close open-short positions. The stock has been on the downward track for over four years as the company has been losing market share to online retailers.

GameStop takes baby steps on the road to recovery
Courtesy: GameStop

The physical brick and mortar gaming market have been experiencing massive pressure from the digital games and subscription services including Xbox Game Pass, Xbox Live or Playstation Network. Digital downloading and mobile gaming have been driving customers away from consoles.

The steps taken include the replacement of the whole management team, store closing, and strategic and operational alternatives for unprofitable units. Traders expect that the management could announce a share buyback, dividend cut, and maintaining a stable balance sheet for the turnaround plan. As reported in the second quarter call, the company remains on track to close between 180 and 200 underperforming stores worldwide by the end of the fiscal year.

Read: Will AMD stock continue to rally amid competition worries

The profit productivity is increasingly dependent on the enhancement of its store base for an increasingly digital world. This remained an essential part of the future of its business and for growth. The company is likely to expand profitability in the future by lowering its store footprint in certain markets due to lower cost implications.

The gaming technology and market have been advancing at a rapid pace. And, with the development of the Internet of Things (IoT) and 5G technology, the next gaming console cycle will focus on physical disks as recognized by Microsoft and Sony. The company is expected to turn beneficial from the turnaround plan only by 2021 and experts believe that the stock has to remain on the sidelines at least this next year.

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