In the following video, Motley Fool analyst Austin Smith discusses GameStop's (GME 1.07%) chances of survival.
One of the problems facing GameStop is that fewer new games are being sold because there aren't a lot of new devices being made. It's been years since we've seen a big upgrade cycle of PlayStations and Xboxes. As a result, there's been a drop in used-game sales as well, and used games account for 70% of GameStop's earnings.
Even the release of a new console and new titles might not help. We've seen poor sales of Nintendo's (NTDOY -1.16%) Wii U, and last quarter, Halo and Call of Duty failed to lift GameStop's numbers. And when the next device upgrade cycle does come around, a lot of manufacturers are expected to introduce downloadable content -- which doesn't help GameStop at all. Electronic Arts (EA 1.30%) wouldn't want to give a middleman like GameStop a slice of its profits when it could build a relationship with the likes of Microsoft (MSFT -1.27%) for downloadable games. Microsoft, in turn, would want to have a relationship with a company such as Activision Blizzard (NASDAQ: ATVI), which already has a strong foothold in the online streaming games space, particularly through its World of Warcraft franchise.
GameStop's same-store sales slid 8.3%, and revenue in the most recent quarter slipped 8%. The company would be more of a value trap than a value play right now.
