In brief: Physical video game sales have been declining in favor of digital downloads for years. That's bad news for GameStop, which just announced that it has cut more jobs to reduce costs and reported lower-than-expected fourth-quarter results.
GameStop posted $1.79 billion in revenue for the fourth quarter, short of the expected $2.05 billion and lower than the $2.23 billion the company earned in the same quarter a year earlier. Its adjusted EPS of $0.22 per share also missed the expected gains of $0.30 per share.
Shares of GameStop crashed 17.6% yesterday and are currently at $12.60.
Digital downloads are killing physical game sales, which in turn is having a massive impact on traditional brick-and-mortar stores like GameStop. It's a similar story in the UK, where the country's largest video game retailer, Game, this year announced it is ceasing its pre-owned and trade-in operations.
GameStop is implementing cost-reduction measures to try to streamline its business. The company has already ended its operations in Ireland, Switzerland, and Austria, and has been cutting jobs.
Reuters reports that GameStop had about 8,000 full-time salaried and hourly associates and between 13,000 and 18,000 part-time, hourly associates worldwide as of February 3. In 2023, it had 11,000 full-time salaried and hourly employees and between 14,000 and 27,000 part-time hourly employees. The lower costs of labor, consulting services, and marketing saw its expenses fall 21.2% to $357.1 million.
The biggest concern for GameStop is that there will come a time when it cannot feasibly cut any more costs and its sales will continue to decline to a point where the business is unsustainable. The retailer is also facing increasing competition in the physical gaming space from Amazon and eBay.
One platform where physical games remain more popular than their digital alternatives is the Nintendo Switch. Nintendo's most recent quarter saw it generate $1.22 billion from physical game sales, representing 55% of the total. Digital sales, which include in-game purchases, full-game sales, and subscriptions to Switch Online, were at $914 million, or 45% of the total.