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The Real Reason Why the PS5 Announcement Crushed GME Stock

Last Updated September 23, 2020 1:07 PM
Laura Hoy
Last Updated September 23, 2020 1:07 PM

News about the latest PlayStation console couldn’t save beleaguered gaming retailer GameStop (NYSE:GME) this week.

Gaming consoles tend to have seven-year lifespans , and as this year marked the end of one cycle, details about the next wave of hardware were highly anticipated.

This week’s update on Sony’s next-generation PlayStation console, PS5, created a buzz among gamers but sent GME investors running for the hills as the stock slid 5% in just 24 hours.

What Gives?

GME stock
Shares of GameStop plunge in the wake of PS5 announcement. | Chart: Yahoo Finance

The GME stock slide may have come as a surprise considering hardware sales were a huge part of the firm’s disappointing September earnings release. GameStop generated 15% of its overall revenue from hardware sales and that figure fell more than 41% in the second quarter. That’s because consoles haven’t been updated in years so gamers are holding out for the latest versions of Xbox and PlayStation. 

The PS5, and Xbox’s Project Scarlet  for that matter, won’t be available to purchase until Christmas 2020. That means even pre-orders that will gauge demand for the devices won’t be available until the second half of next year, which doesn’t help GME stock in the near-term. 

The Disc Decline 

The Christmas release date wasn’t really a surprise, though, so it could be some of the other details revealed about the PS5 that hurt GameStop stock. 

Users can still use physical disks with the PS5, which is good for GamesStop’s business, but the new device is clearly another step in the direction of digital game sales. The PS5 will still require users to install new games , so although using physical game disks reduces download times, they won’t save storage space for users.

Instead, the new PS5 is improving the game download experience to make storage less of an issue. PS5 system architect Mark Cerny told Wired  that the new console allows users to access smaller blocks of data that will optimize storage and make it easier for gamers to download only the parts of a game they want to use and remove those they aren’t using.

That’s bad news for GameStop because it makes digital downloads much more convenient for users, further strengthening the case for gaming subscriptions. 

A Perfect Storm For GME Stock

On top of the PS5 news, GameStop stock was also hit by news that Target (NYSE:TGT) is partnering with Tru Kids  to resurrect the Toys “R” Us website. The revamped site will take advantage of Target’s massive logistics arm by offering customers free two-day shipping and same-day curbside pickup. The partnership was salt in the wound for GameStop as it offers shoppers yet another option for video game purchases.