GameStop Stock Offers a Buying Opportunity, Bulls Say

GameStop stock price has been struggling to generate a sustainable upside momentum amid a tug of war between bulls and bears. Bulls are optimistic that the new revenue streams along with Microsoft deal would support share gains.

The store’s closure and pandemic related social distancing restrictions kept GameStop stock under pressure during the first nine months of the year. However, the company’s strategy of boosting its online business helped in trimming the impact of store closure.

New revenue streams will back GameStop stock gains

Bulls claim that the company’s investments in new revenue streams would help in capitalizing on increasing demand for gaming products. With videogame spending hitting new record highs month over month, GameStop has been seeing strong traffic at retail stores and online venues.

In addition, the latest deal with Microsoft has helped in strengthening sentiments. DOMO Capital Management’s Justin Dopierala says the market hasn’t fully priced in the full potential of the MSFT deal.

“The GameStop and Microsoft revenue sharing agreement appears to be more material than originally indicated by many analysts covering the stock. After a lengthy discussion with GameStop, DOMO Capital’s understanding is that GameStop will revenue share on all downstream revenue over the lifetime of every new or pre-owned next-generation device they sell allowing GameStop to capitalize on the booming DLC spend as well as Microsoft’s recent acquisition of Bethesda,”

Justin Dopierala said.

Investors expect more digital presence

Ryan Cohen, who holds almost a 10% stake in GameStop, has constantly been suggesting the management to move the focus towards a digital business model instead of outdated bricks-and-mortar stores.

GameStop has generated revenue of $942 million in the latest quarter, down 27% year over year. The steep revenue drop was the outcome of lower traffic at retail stores due to the pandemic. Its second-quarter loss came in at $1.40 per share.

“The Company continues to focus on efforts that position it to manage through this unprecedented time, such as maintaining its balance sheet strength, prioritizing the allocation of resources to areas of the business that produce strong cash flow,”

the company said.