PETITION

PETITION is generally about disruption and one notable retail business is clearly in the midst of a secular sea change*…

On September 10, GameStop Corp. ($GME) reported Q2 ‘19 earnings. They weren’t, to put it kindly, dogsh*t. The results reflected a sharp decline in sales -14.3% from $1,501mm in Q2 ‘18 to $1,286mm, driven by a 41% drop in console sales and 18% reduction in pre-owned sales. Comparable same stores sales declined 11.6%. To make matters worse, GameStop gave investors lower guidance than expected. On last Tuesday’s earnings call management noted:

We are approaching the end of the current console cycle with nice generation consoles slated to be available in late 2020, and as such we expect our year-over-year sales to be down over the next three or four quarters, reflecting the end of that cycle.

Such confidence and enthusiasm!! The shift to digital video games is clearly cutting GameStop out as the middleman, and increased competition is eating up its market share: the business is becoming increasingly cyclical.**

On the earnings call, Ben Schachter, equity analyst at Macquarie Group, had some questions for management about the shift to digital in the video game industry and how $GME is going to adapt:

Can we talk about high-level -- the shift to digital, and then how it impacted the business? So a few questions on that. One, when you think about the next cycle, what percentage of total game, do you think are going to be sold physically versus digital? And what your share might look like in that? Two, how do you expect to participate in digital? How will that evolve for you guys versus what it is today? And then three, around the used business, what does that look like as we move more to digital?

Management responded:

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