What happened

Shares in GameStop (NYSE: GME) fell lower after it was reported that Netflix (NASDAQ: NFLX) had a former executive with. set Facebook and Electronic Arts to expand it into Video games. GameStop stock was trading 13.1% at 11:18 a.m. EDT Thursday.

GameStop’s share price has skyrocketed this year, with some investors hoping the video game retailer can make a comeback by trying to close underperforming deals and ride the upgrade wave Sony and Microsoft‘s new game consoles. While the Netflix news isn’t looking good, it doesn’t change the competitive pressures GameStop has already seen in the video game retail market. There is a glimmer of hope, however.

GME Data from YCharts

so what

Bloomberg reported Wednesday that Netflix plans to launch video games within the next year, and those games will be offered to subscribers at no extra charge. The game team at Netflix is ​​led by Mike Verdu, who has experience with. Has Zynga, Atari and Electronic Arts and has worked on the virtual reality content of Facebook.

Netflix toyed with the idea of ​​offering video game rentals back in 2011 before abandoning the idea. This new foray into gaming appears to focus on offering original gaming content based on some of Netflix’s intellectual traits, such as: Strange things.

A customer pulls a packaged game off the shelf in a retail store.

Image source: Getty Images.

What now

GameStop’s business was suffer a slow decline Over the past decade, more and more gamers have chosen to purchase their games digitally from their PC or console rather than buying a packaged game CD at one of 4,698 retail stores. From fiscal 2016 to fiscal 2020, net sales decreased from $ 7.9 billion to $ 5.1 billion, while the cost of supporting the store fleet increased profits during that period from $ 305 million to a net loss of $ 215 million.

The introduction of the new game consoles helped increase net sales by 25% in the first quarter of the fiscal year. Analysts expect GameStop to report a 9.5% increase in revenue for fiscal 2021 as sales of new gaming hardware are likely to trigger additional game purchases. Netflix’s move to offer game content won’t remove game console sales from GameStop’s business, but it does serve as a reminder that GameStop must change quickly to survive.

It recently committed former executives Amazon to try to turn things around GameStop recently appointed Mike Furlong, former head of Amazon’s Australian operations, as its new CEO last month. These are part of GameStop’s efforts to move into a “growth phase,” as management stated on its last earnings call.

This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.

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