GameStop's Digital Downloads Competition Getting Worse; Oppenheimer Downgrades Stock

• GameStop Corp. GME has seen a 17.05 percent decline in its share price over the past one month, although the shares are still trading above the 52 week low.
• Oppenheimer’s Brian Nagel has downgraded the rating on the company to Perform.
• Although the stock is a speculative option to play the strengthening product cycle for video games, Nagel expressed concern that with the peak of the cycle coming to an end, it has not helped drive better results for GameStop.

Analyst Brian Nagel mentioned that GameStop was a “sentiment-driven” stock and mentioned that “more often we have been left scratching our heads trying to explain why a seemingly stronger cycle is not helping to fuel better results at GME.”

The company posted a 9.3 percent decline in new software sales for Q3, despite the launch of several key titles. Nagel said that he was “increasingly skeptical of the potential for a shockingly good Holiday 2015.”

Nagel also expressed concern regarding the increasing headwind from digital downloads, while saying that date suggest that gamers are preferring to download games, which has been impacting physical sales of video games.

According to the Oppenheimer report, “GME has very smartly started to diversify its business model into new divisions and product lines.” Sales of non-physical gaming increased 17 percent in Q3, as compared to 13 percent a year ago.

However, Nagel does not expect the market to “embrace” non-video game businesses as key drivers for GameStop in the near future.

The EPS estimates for Q3, FY16 and FY17 have been lowered from $2.41 to $2.15, from $4.55 to $4.10 and from $5.25 to $4.65, respectively.