GameStop Corp. (NYSE: GME)’s impressive run to two-year highs does not come as a surprise, going by the explosive growth taking place in the video gaming industry. A 90% plus rally since the start of the year stems from growing investor confidence that the company remains well-positioned to capture lots of shareholder value going forward.
Core Business Tweak
RC Ventures building a 10% ownership stake in the company is what has got the stock’s sentiments going in the market. The venture capital firm is pushing for a change in the way the company operates, all in the effort of pursuing emerging opportunities in the video gaming industry.
Instead of focusing on physical hardware sales, the firm is pushing GameStop management to focus on sales and digital streaming, an area with tremendous potential as everything moves online. Likewise, the venture capital firm wants the video gaming company to sell-off its European and Australian store networks and also decline to renew store leases.
Focus going forward should be on investing any cash from the gaming console on all digital gaming services. With the digital gaming industry poised to expand to $200 billion per year by 2023, GameStop remains well-positioned to own a bigger share of the market on focusing on digital gaming.
A move into digital gaming is a step in the right direction that should help cure the GameStop business, which has been shrinking for years. The company has had to resort to cost-cutting and store closures to stay afloat in the wake of the pandemic taking a toll on traffic into brick and mortar stores.
Earnings Expectations
However, ahead of the release of its quarterly results, there are concerns that the results might struggle to beat estimates. Shrinking store base and a consumer shift toward digital gaming could as well have taken a toll on revenue streams in the recent quarter.
For the stock to continue edging higher after the recent explosive move, investors will want some assurances that the company is serious about digital gaming, an area that could help it capture its record annual revenue of $10 billion.