Gamestop shares plunge after it pulls plug on finding a buyer
Gamestop, the nation's largest independent seller of video games, is ending efforts to find a buyer. The company's stock price tumbled 25 percent in early-morning trading, with investors seemingly questioning the brick-and-mortar retailer's prospects as more consumers download games online.
Gamestop began considering strategic alternatives, including a possible deal to sell the company, last June. But it stopped pursuing a sale "due to the lack of available financing on terms that would be commercially acceptable to a prospective acquiror," the company announced on Tuesday.
Interim Gamestop CEO Shane Kim cited the company's problems in a November earnings call, noting that "we continue to face challenges in our traditional physical video game retail business model."
Gamestop will also continue searching for a permanent CEO, after former chief executive Michael Mauler stepped down last May after only three months in the position.
With no buyer in sight, the company must now get its financial house in order, Wedbush Securities analyst Michael Pachter said in a research note. "We expect GameStop to aggressively cut costs in 2019 and beyond, to pay its debt balance down to zero and to increase its share repurchase program."
As digital downloads cut into physical sales of video games, the retailer will need to improve its collectibles sales in the big picture and make its stores more engaging for experience-hungry consumers, said analyst Joseph Feldman from Telsey Advisory Group.
"You want to give people a reason to go back into the store, whether it's playing areas or places to hang out with friends in there," Feldman said.
The retailer has more 5,800 stores globally. It reported $2.1 billion in revenue for the third quarter of 2018, and $0.67 earnings per share, up nearly 5 percent and 25 percent, respectively, from the year-earlier period.