UPDATE: GameStop (GME) Rating Cut to Sell at Benchmark; Results Not Impressive, Core Business at Risk of Being Displaced
Benchmark downgraded GameStop (NYSE: GME) from Hold to Sell with a price target of $29.76. The change follows Q2 results and is tied to valuation. Analyst Mike Hickey also warned that growing consumer adoption of digital and streaming subscription content will effect the company's core business.
Commenting on the quarter, Hickey said, "All segments except for “Other” missed our sales forecast, fiscal Q3’15 guidance disappointed, and the Company did not pass through profit upside."
Speaking more broadly, Hickey said, "We believe the Company’s core business model, the physical distribution of hardware, software and used product through a traditional retail network, will be increasingly displaced from growing consumer adoption of digital / streaming / subscription content service channels and the competitive pressure from mobile platforms, an ecosystem we anticipate will extend to the living room. We remain concerned that investor confidence balances precariously over the perceived long term value of their core business model; a potential market / operational disruption, could shift focus over to the outmoded nature of physical delivery while resetting an aggressive short thesis that can be challenging to disprove. We believe the console will complete the turn to digital within the next 5 years, which would effectively dislocate the Company’s performance foundation."
The analyst concluded, "... we remain largely unimpressed by the Company’s transformation to a mobile distributor / t-shirt, bento box, waffle maker retailer and suspect the physical distribution of game software is terminal obsolescent."
For an analyst ratings summary and ratings history on GameStop click here. For more ratings news on GameStop click here.
Shares of GameStop closed at $46.20 yesterday.