GameStop Used Games Can’t Save Profits Despite Strong Console Sales

GameStop used games are the primary profit generator for the billion dollar company, but even with second hand games and strong sales of new consoles contributing to over $9 billion in sales for 2013, GameStop profits slid almost 15 percent in the last quarter.

The Christmas shopping season is the most important for almost every retail outlet, and video game retailer GameStop is no exception. Strong sales of used games, new games, consoles and other related merchandise keep the company the most profitable video game company in the United States. Even with strong sales from the new PlayStation 4 and Xbox One, video game retailer saw a drop of 15 percent of net profit for the important fourth quarter of 2013.

The net profit was $220.5 million which put them under the estimates from analysts. The total revenue of the company was up to $9.04 billion but this was credited to the new consoles. According to the earnings report the increase in revenue was “primarily driven by a 29.7% increase in new video game hardware sales related to the launches of Microsoft’s Xbox One and Sony’s PlayStation 4.”

More telling was the decline of both new and used video games by 2.8% and 4.1% respectively. Reasons were given such as lack of new games as well as a decrease in store traffic. Another reason may be the progression of digital distribution on the PlayStation 4 and Xbox One. Even though GameStop sells used games as well as new, games are seeing same day digital and retail releases which may be part of the reason people do not feel the need to return to the store.

On the heels of the financial report was the closing of Spawn Labs which GameStop acquired in 2011 which was working on a cloud-based streaming service. Even with PlayStation Now on the horizon and Nvidia’s PC streaming hand held Shield gaining momentum, GameSpot interviewed GameStop’s VP of investor relations Mat Hodges who said that gamers are not ready to get behind cloud gaming quite yet.

“While cloud-based delivery of video games is innovative and potentially revolutionary, the gaming consumer has not yet demonstrated that it is ready to adopt this type of service to the level that a sustainable business can be created around it,” Hodges said. GameStop will instead support the other services such as PlayStation Now.

GameStop also announced that it is going to close roughly 2 percent of its nearly 6,000 stores during the fiscal year. The offering of GameStop’s used games will decrease even further after it closed 180 stores last year. Other stores are now getting into the profitable used games market such as Wal-Mart who announced their own used game program to complete with GameStop.

Despite this, the company is predicting growth for the 2014 fiscal year in the range of 12 to 22 percent. The growth is predicted based on the expanding digital offerings of the company. Digital distribution of games as well as the Kongregate online game service saw 15.1 present growth to $724.4 million.

Stocks were down 4.04 percent as of 4pm EST at 37.33 per share.

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