In 2018, video game sales topped $40 billion dollars.
Yet, by early 2019, the world's largest video game retailer was facing a crashing stock price — from around $16 in January to around $4 by August.
Frankly speaking, 2019 has been a bloodbath for GameStop. Look no further than the company's 2019 stock performance for evidence of that:
The gradual decline in GameStop's stock price, seen above, represents hundreds of millions of dollars in lost value.
The reason for the stock's price crash is multi-faceted, but the long and short is this: Like Blockbuster Video and Tower Records before it, GameStop faces major challenges to its business model from the internet. As more people buy video games through digital storefronts, fewer buy games on physical discs from GameStop. And that trend isn't likely to reverse.
So, what can GameStop due to fix its stock price?
"In terms of market sentiment, we'll be somewhat targeted in going out and meeting with some of the folks that assess our stock and write on our stock," GameStop CEO George Sherman told Business Insider in a phone interview last week.
In so many words: Sherman and his fellow C-suite executives are going to speak directly to analysts in an attempt to restore confidence in the ailing company.
"We are out of the quiet period and can begin to tell our story a bit more," he said. "We're anxious to go and meet with some of the folks that are influencers within that community — I think that's probably step one."
It's a key first step, as analysts have been dogging GameStop in 2019.
"We believe the future of gaming is digital cloud-based delivery, an opportunity where GME will be dislocated," Benchmark analyst Mike Hickey said in a note last week. "We do not expect investor sentiment for GameStop to improve, and we believe questionable valuations on current fundamentals are inherently flawed."
Hickey is one of the most dire analysts on the GameStop beat.
Other analysts revised price estimates downward following last week's earnings call.
"There is very limited scope and time to stage a turnaround," Bank of America analysts Curtis Nagle said in a note to clients last week. The note projected a $2.50 stock price, down from around $4 currently.
Beyond speaking with bearish analysts, GameStop's new exec team has another idea in mind for fixing the stock price: "Deliver on our promises — when we say we're gonna do something, go do it," Sherman said. "We are very clear by saying that our story is not a sales story for the next four quarters or so."
Sherman is employing radical transparency as a means of improving analyst sentiment on GameStop's stock price, and that started in last week's earnings call. GameStop's leadership team warned investors that the next year is going to be challenging as the current game console cycle ends and a new one begins in holiday 2020.
"Make no mistake: This transition will take time, and our sales expectations over the next several quarters will reflect the end of console cycle, and the next generation of consoles from both Sony and Microsoft slated for 2020," Sherman said in the investor call.
"This is a community — a set of constituents that maybe hasn't had the flow of transparency and dialog that it needed to have," CFO James Bell said in an interview with Business Insider last week.
Bell said it's his and Sherman's role to "establish and create and maintain credibility for the shareholder base."
Bell said the next year "is about architecting the foundation of how we operate the business for greater profit levels."
In so many words, it's about creating a solid base before the next PlayStation and Xbox consoles arrive in holiday 2020, "so that when you reach the cyclicality point of a console return — the next-generation launch — you have a highly leverageable model that underpins that revenue growth that happens during that cycle."
Given the vast drop in stock value across 2019, one obvious question comes to mind about the coming year: Will GameStop make it to holiday 2020?
According to Wedbush analyst Michael Pachter, GameStop has "virtually no bankruptcy risk" in the coming year.
"They're generating $200 million this year and they're just about cash zero right now ($400 million in cash and $400 million in debt)," he said in an email to Business Insider last week. "They should have no problem getting to flat when next-generation consoles launch."
He summed up the situation simply: "I think they are fine. The market is skeptical, and they will have to prove themselves."
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