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Why GameStop Stock Plunged 15% in April

John Ballard, The Motley Fool

What happened

Shares of GameStop (NYSE: GME) lost 14.9% in value last month, according to data provided by S&P Global Market Intelligence.

The world's largest video game retailer is struggling to survive with more gamers buying games digitally. The company's latest earnings results painted a dire picture for the short term.

Two console controllers sitting on the floor in a living room.

IMAGE SOURCE: GETTY IMAGES.

So what

GameStop has been struggling for years to grow sales in the middle of a digital tsunami sweeping across the video game industry, and the company's most recent quarter didn't show any reversal of fortunes. Last year, sales from continuing operations declined 3% to $8.3 billion. 

GME Chart

GME data by YCharts.

Sales of new hardware, new software, and preowned games all fell, which is nothing new as gamers buy more of their games digitally over their Xbox or PlayStation console.

Management sees both total sales and comparable-store sales dropping between 5% and 10% in fiscal 2019. 

Now what

Despite declining sales, GameStop is not going anywhere anytime soon. After all, with $8 billion in annual sales, it is still a recognized brand in the industry. The company is seeing growth in accessories (up 22% last year) and collectibles (up 11%). Plus, GameStop generated more than $1 billion in sales last year from digital items, which gamers can purchase from GameStop's online store and download after purchase.

The company is taking other steps to keep its brand relevant. For example, management is beginning to invest in the booming esports market. In late March, the company signed partnerships with multiple esports organizations, including Complexity Gaming. GameStop will be the official title sponsor of a new state-of-the-art facility that will serve as Complexity Gaming's headquarters in the Dallas area.

It's unclear whether these esports partnerships will encourage gamers to buy more games from GameStop. Unless it shows stabilization on the top line, the stock will likely remain underwater.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of GameStop. The Motley Fool has a disclosure policy.