Game Over For GameStop?

Close on the heels of GameStop Corp. GME offering a downbeat forecast, Piper Jaffray downgraded the stock from an Overweight rating to a Neutral rating. The firm also slashed its target price by $18 or nearly 44 percent from $41 to $23 on the stock, which was down more than 10 percent.

Analyst Michael Olson cited the following two key factors behind the downgrade:

• Erosion of game business.
• New initiatives like collectibles/tech brands failing to compensate the weakness in other segments.

The brokerage termed GameStop’s mix shift as a positive one. However, those positive is not good enough to offset weakness in core game segment. The firm expects the third quarter to be a “microsm of the next several years.”

In a research note, Olson said, “GameStop is swimming upstream in video games due to digital and, while growth of new segments will offer an occasional lifeline, we do not expect Tech Brands & Collectibles will prove large enough to offset. We stayed OW too long due to optimism around the mid-cycle hardware refresh (and VR), but we now believe weakness in the software and pre-owned will overwhelm that potential positive.”

The brokerage thinks GameStop reached a stage where some positives could not be translated into gain citing the hardware refresh, which is good but would not matter much in the changed situation.

At last check, GameStop was down 11.08 percent at $20.95.