GameStop Stock: NFTs and Blockchain Won’t Fix a Dying Business
GameStop (GME) sells video games (software), hardware and accessories (consoles and related items), and collectibles. About 80% of sales come from the sale of games, along with gaming hardware. It’s a real problem because it’s hard to see much of a future for hard copies of software, and hardware seems to be a subscription relationship, not one where you buy a device from a store.
And while GameStop loves to talk about blockchain, NFTs, and all sorts of other areas where it doesn’t make significant money, it’s really just to distract you from the slow death of its core business. Anyone with a decent internet connection can download the latest games from their living room via each console’s digital marketplace. You don’t need a store or any kind of middleman anymore.
Microsoft (MSFT) have taken things a step further. It offers a subscription-based service called Game Pass that gives both Xbox and PC owners access to a full library of games, many brand new. That may not mean that subscribers never choose to go into a store to buy a title that isn’t part of their subscription, but it certainly reduces the need to visit a store.
That leaves GameStop as a seller of collectibles, a business that the company has grown, but which is still only 20% of total sales. And aside from moving into collectibles, nothing else the retailer’s management has talked about has produced any kind of meaningful revenue.
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GameStop has buzzwords, not a plan
Before it became a meme stock, GameStop was a retailer in decline with a decent balance sheet and mostly short-term leases, which gave it a lot of flexibility. The company knew it had to pivot as the video game industry changed. But short of throwing everything away and becoming a frozen yogurt chain that also sells collectibles, there’s no real plan that works when the product you’re selling no longer needs to be sold.
The company has cut corporate overhead, improved its supply chain and fixed its systems. Unfortunately, that only makes the old business more efficient, and CEO Matt Furlong understands that. So that’s why he talks about business areas built around ideas that probably won’t work but sound innovative.
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“On the product front, our enhanced technology capabilities allowed us to follow the launch of our digital wallet with the launch of our new marketplace that allows players, creators, collectors and others to buy, sell and trade NFTs,” he said during the company’s second quarter earnings call. The launch of our NFT marketplace supports GameStop’s pursuit of long-term growth in the cryptocurrency, NFT and Web3 gaming verticals, which we expect will become increasingly relevant to the collectors and gamers of the future.”
NFTs have largely proven to be more hype than actual business. They can be a revenue driver for certain players (musicians and sports leagues), but the public doesn’t seem overly interested in digital collectibles,
And don’t worry, Furlong also talked about blockchain while not actually saying anything.
“We are building on the momentum established by our previously disclosed partnerships with organizations such as Immutable X and Loopring, whether through new relationships that support our trading business, blockchain group or both. The agreement we just announced with FTX is a by-product of our trading and blockchain teams are working together to establish something unique in the retail world,” he added.
GameStop is about dealing with a slow decline
Furlong has bold plans because no CEO can admit that his business is in a death spiral that may be impossible to pull out of. He acknowledged that to a point in his comments.
“I would like to conclude by reinforcing that we are working to achieve something unprecedented in our industry, transforming an old brick-and-mortar retailer into a technology-driven organization that meets customer needs through stores, e-commerce capabilities, both digital marketplaces and new online communities. Our path to becoming a more diversified and technology-centric business is one that obviously carries risk and will take time,” he said.
GameStop’s CEO might be able to pull this off, but it’s an extremely long shot, and the company that comes out the other side — if it ever happens — will be something else entirely. Selling physical video games and hardware is no way forward in the long term, especially with digital adoption and subscription models quickly becoming the norm.
And while NFTs and blockchain sound great, they may not be markets where a trader, even one trying hard to develop, can make meaningful money.
