I have this cool new website where you can submit potential video ideas and vote on previous submissions well it turns out everyone wants me to talk about Game Stop more than anything else and I can see why there's a good chance that they are or once were a big part of your life and they're not doing well I don't want to mislead you I've covered companies on this channel that have fallen much further than this to me anyway their current situation isn't as bad as some people are making it out to be I think Game
Stop is one of those places that everyone likes to make fun of right you love to hate them or maybe you just straight-up hate them so maybe when they fall on tough times like this people like to exaggerate the issue or maybe it's because this is a decline it that's easy to understand I'll go more into it later but more and more people are buying their games digitally and that's not good for a store that relies on the sale of physical copies but when we look at their sales over the last 10 years they actually
haven't gone down in the way that we might expect some of the biggest evidence of their decline is a 673 million dollar loss in 2018 which is actually the result of a near billion dollar goodwill impairment charge that they say as a result of a sustained decline in our market capitalization and lower forecasted cash flows so that brings us to their stock price which is horrible what can I say about it $40 range in 2015 to single digits in 2019 and it's not that they're doing terribly at the moment it's more that the market has
no confidence in the future of the company it feels like they've been diagnosed with a life-threatening disease the symptoms are starting to show now but if untreated this thing can go bad fast there's no easy treatment they've been going through CEOs like crazy and none of them have put together a clear plan let me go back to the beginning James McCurry and Gary cousin were two friends attending Harvard Business School with aspirations of starting a business together a few years after graduation they came up with an idea for a potential new business that would specialize
in selling computer software and video games here's why they thought that would be a good idea for one home computers were becoming popular the manufacturers had price wars going on they were becoming cheaper and better and everyone was buying them the other reason was the popularity of home video game consoles the video game market was going crazy in the early 80s you had the Atari 2600 of course selling 30 million units but then you also had in television and ColecoVision pushing their way into the market along with countless others in fact a small tangent but
do you know about the great video game crash of 1983 in that year the entire North American video game market came crashing down and a big reason behind it was over saturation just imagine that so many companies saw such great potential in the market we're talking about dozens of them all coming out with their consoles in the games to go with them along with third parties producing their games to be played on these consoles it was all too much there was no uniformity they were all being rushed out in many cases the quality became questionable
which steered people away all of this combined with the rising popularity of home computers on which you could play video games that meant that these consoles were struggling I only mentioned the crash because it helps express how booming the market was just before it back to these two it took them a little time to get the funding for their store it ultimately came about a year later by Ross Perot if you know that guy who ultimately bought in and received 1/3 ownership in late 1983 they opened their first store in Dallas and called it Babbage's
named after a mathematician from the 1800s that appears to have done a lot of original early work in inventing the computer he did open their first store right in the middle of the big video game crash so that wasn't good they posted some pretty major losses in the first few years but they made it through it they were sure to sell mostly games from the most popular consoles like the Atari 2600 plus computer software was a big part of their business plus they opened it in the middle of the crash and not before it so
ID rise that motivated them to put a larger emphasis on the home computer side of things since they already saw where the consoles were headed in 1985 and maybe you've heard of this at a Nintendo Entertainment System was released in North America and it's generally credited with saving the industry 60 million units sold which was good news for a store that sold video games for it these games became an ever-increasing portion of their business and in the following years babbage's finally started turning profits in 1988 they became a public company when they sold 30% of
it for twenty million dollars and that twenty million was put right back into the store and used to open new locations new systems kept coming out video games continued growing in popularity and it was all good for Babbage's things get a little messy from here and it's easy to get lost in the details so let me just go over some of the highlights in 1994 they doubled in size when they merged with another similar software store called software etc it was a 380 store chain merging with a 335 store chain by 1996 there were all
these new systems on the market and it motivated Toys R Us and Best Buy and everyone else to get involved all the new competition caused sales to drop and brought them into bankruptcy the next month it was bought by Leonard Riggio who was the founder and primary owner of Barnes and Noble Andy was already involved in this business too since he helped start software etc from there he closed a couple hundred stores restructured a few things and in 1999 it started opening stores under the name GameStop they would focus more unused video games a few
months later the entire company was sold again this time to Barnes & Noble they saw this as a good opportunity to enter the video game market and thought that the 215 million dollars they paid for it was a good deal and included 495 stores only 20 of which were branded as Game Stop and the rest were either Babbage's our software etc about a year later Barnes & Noble made another deal when they bought 400 funcoland stores for 162 million dollars soon after Funko's name was changed to Game Stop in 2002 Barnes & Noble decided to
make Game Stop a public company but still maintain majority ownership two years later through a combination of a 100 million dollar stock repurchase and an additional dividend distribution Barnes & Noble ended their involvement in Game Stop was now on their own holy cow that was a lot but by 2004 they were incredibly successful they proudly called themselves America's largest video game retailer and it was hard for anyone to dispute that they were adding hundreds of new locations every year while rebranding those other stores as game stops revenues were increasing accordingly mostly due to the release
and growing popularity of the ps2 Xbox GameCube and handheld systems over this time they published Game Informer which at that time was the largest growing magazine in the country with over two million paid subscribers they had an online presence with Game Stop comm and an arrangement with Amazon that made Game Stop the exclusive specialty video game retailer listed on their site however you want to define success I think they were meeting the criteria and it just gets better from there the next year they took out almost 1 billion dollars in debt to buy what many
would consider their biggest competitor Electronics Boutique who you may know better as eb games that was quite a year their store count doubled in the united states and they added hundreds of new locations throughout canada australia and europe they had a slight falling comparable store sales that year but as you can see it just took off in the years following alright that's how they got so big so let's extend everything to today by most key measures including revenue you can call 2010-2011 their best years but as I said they haven't fallen too much from there
here's a breakdown of all their revenue sources going back to their public offering in 2002 the blue line is game systems and they're really not too important for Game Stop the orange line is the new games that they're selling and it's been on a steady decline for years keep in mind this graph just shows their percentage of revenue but obviously their total revenue is going down so this is as well and it's because they're getting hit from all angles the shift toward digital downloads I would say is most responsible behind games straight from your Playstation
or whatever system plenty of advantages to it then I'm sure I don't have to tell you about and add to that game streaming from multiple platforms you can also see how that would be negative for games stuff then even when someone is looking for that physical copy it's a competitive market obviously Amazon Best Buy had their gamers Club it's no surprise that this orange line has been going down and I think most of us would predict that decline to continue their biggest issue is the gray line use game sales because it's been dropping even faster
over the past three years and you can tell that's tied to their decline in new game sales fewer new game sold means fewer use games out there which is bad because their largest profit margin essentially the most money they're making from any sale comes from used games I'm sure you've experienced it you go to trade in your copy of NBA 2k 18 and they give you less than a dollar for it then they take it and sell it to someone else for $6.99 that's a pretty good profit margin so they want that to be their
main source of revenue but as you can see it's quickly becoming their smallest source the yellow line which represents everything else has been rising this segment mainly consists of video game accessories and collectibles but the margins aren't quite as high and the sustainability of those numbers has come into question a good part of it is from those Funko pop figures which many of labelled as a fad plus those sales don't create loyal customers in the same way that video games do the bottom line is overall their profit margins have been sinking for the past three
years because they're having trouble selling the stuff that makes them money which also happens to be the stuff that we most associate with them the core of their business is becoming outdated and everyone knows it so the idea is gamestop needs to make some changes they can hang on to this current model for a little longer but we all see where it's headed and many would argue they've already hung on for far too long for a public company it's hard to make those changes you have millions of shareholders expecting quick results most of them aren't
willing to stick around through a few bad years as they figure it out it's like they need to call a timeout get a little rest huddle together drop a few good plays and get back in the game sort of what they were trying to do in the beginning of 2019 when they were looking for a buyer that way they can be taken off the market and given a chance to try out some of these changes well that never happened they gave up on their search for a buyer and they remain on their own their stock
price at a huge drop when they announced that and continued dropping ever since investors simply have no confidence in GameStop's business model and they've yet to outline something better let me know in the comments what should they do they need to give customers a reason to go there as opposed to downloading their games at home or stopping at Best Buy or wherever and I think I've got it maybe they should start pushing the rewards program onto the customers they hardly ever mention that ok but really I don't it sure sounds like they need to transition
into something else there's been talk about them getting involved in eSports but no clear plan in place they've tried other seemingly random things they had a mobile business that they recently sold a thinkgeek simply Mac and they're all over the place but it just all feels like side efforts rather than something that can actually save them and of course I could talk about some more specific issues with employees and customer experience but again I don't know how significant that is there's a bigger issue here plus I'll leave that to you to discuss in the comments
I'd like to hear what you have to say thank you for watching [Music]
