to have Jim Stop‘s (NYSE: GME) Last year’s stock was like a ride on one of the wildest rollercoasters. Starting in 2021 at about $19 per share, the price had risen to over $300 by the end of January. After experiencing a lot of ups and downs, the price was over $148 a share at the end of last year.
Owning meme stocks can give you a sense of excitement. After all, the stock price can go up quite a bit over a short period, as is the case with GameStop. But long-term investors don’t go after stocks for excitement, or even talk about their stocks at parties. They are interested in owning shares in companies that can increase revenue and profits over time, and having share prices follow suit. If you examine it closely, you will see that GameStop faces constant challenges that put these goals into question.
lost to digital
The competition from digital games has intensified over the past several years. Highlights from Epic Games, Steam, and Microsoft, And Sony Provide customers with the opportunity to download games directly. This is at the expense of GameStop, which relies primarily on retail stores to sell consoles and video games.
In the company’s third fiscal quarter, which ended October 30, sales increased more than 29% to $1.3 billion. But this seemingly good news isn’t quite as positive as it seems. Hardware sales, up 62% to $669.9 million, led most of the increase, thanks to new game consoles introduced in late 2020 by Sony and Microsoft. However, these companies usually only release new devices every few years. This means GameStop may face challenges to keep sales growing as fewer people buy the systems.
Meanwhile, software sales fell more than 2% to $434.5 million. Thus, it does not appear that game sales have been given a boost due to the new consoles, as consumers have turned to alternative sources.
Investors were naturally excited when Ryan Cohen, founder of the successful online company Chewy, built a large ownership stake in GameStop. He also became president.
However, since the company has appointed a new CEO and CFO who has experience with the internet giant AmazonThere was a lack of detail about GameStop’s digital strategy. Management may have a strategy to move the company forward, but investors need to know more before considering stocks.
Losses are increasing
Unfortunately, GameStop continues to lose money despite the increases in earnings. In the most recent quarter, its operating loss widened to $102.9 million from $63 million in the same period last year.
Part of that stems from selling more game consoles and less software. This is because the devices have less margin. With the intense competition from digital games and the prospect of fewer game consoles being sold, achieving profitability in the future seems challenging.
Certainly, GameStop faces challenges, particularly the competitive landscape where digital games encroach upon its territory. This makes the potential for profit taking uncertain. When a money-losing company faces stiff competition, there are better companies to invest in. I think this is a good opportunity for existing GameStop investors to sell their shares.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.