3 Things for GameStop Investors to Watch in 2017

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3 Things for GameStop Investorsto Watch in 2017

Image source: GameStop.

Performance for the collectibles segment

With digital downloads threatening its software sales, GameStop is counting on video game and pop culture merchandise to be a new growth avenue. The company thinks its addressable market in collectibles could be bigger than video games by 2019.

Image source: GameStop.

GameStop estimates collectibles revenue grew 60% annually in 2016, and it’s opening new locations of its ThinkGeek chain while shrinking video game retail location count.

Image source: GameStop.

GameStop is aiming to grow collectibles revenue from roughly $500 million in 2016 to $1 billion in 2019, so the extent of growth this year could have a big impact on the company’s stock performance.

Image source: GameStop.

New hardware launches

New hardware sales at GameStop were down roughly 30% over the important holiday 2016 sales stretch, and the company is hoping that new console hardware launches in 2017 will reverse that trend. Reception for Nintendo’s Switch console looks particularly important.

Image source: Nintendo.

“The Switch uses physical media, and then Nintendo products have historically had a low digital download rate, so we expect this to be a console that drives strong sales of physical product along with the console.”

--GameStop COO Tony Bartel

Image source: Nintendo.

Microsoft is also launching new hardware this year, with its upcoming Scorpio expanding the Xbox One console line. If both Microsoft’s Scorpio and Nintendo’s Switch prove to be successful, the market’s outlook on GameStop could improve dramatically.

Image source: Microsoft.

Software and in-store digital currency sales

Software sales were down roughly 16% at GameStop across the 2016 holiday stretch, with the decline stemming from the digital sales transition and disappointing performance for Call of Duty: Infinite Warfare and other big releases. That puts 2017’s software sales under the microscope.

Image source: Activision.

Releases to watch in 2017 include Zelda: Breath of the Wild and other software for Nintendo’s Switch console, a Star Wars Battlefront sequel from Electronic Arts, Take-Two Interactive’s Red Dead Redemption 2, and Activision Blizzard’s next Destiny and Call of Duty games. Image source: Nintendo.

Along with the performance of key software releases, investors should also monitor GameStop’s in-store sales of digital currency vouchers for console online platforms, which actually grew 26% year over year in the company’s last reported quarter. The retailer has between 35% and 40% market share in this segment, and continuing to post digital currency voucher growth looks to play an important role in the company’s ability to offset effects of the broader digital transition.

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