GameStop is on the verge of selling more collectibles than video games

GameStop. CollectiblesStart.

The brick-and-mortar retailer’s recent impressive financial results — which featured much higher earnings per share than analysts were anticipating, its largest quarterly operating profit since 2017, and the decision to allow bitcoin on its balance sheet — also offer some perspective on how the company is evolving in the face of secular pressures on its legacy gaming business.

GameStop breaks out three major segments for its sales: 

• Hardware (consoles and accessories)

• Software (games, downloadable content, in-game currency)

• Collectibles (Funko Pops, “Pokemon” cards, and the like)

With revenues of $270 million (versus estimates of $216 million), collectibles were the only segment to exceed analysts’ expectations, and did so handily. That’s the third consecutive quarter where collectibles revenues sequentially increased and surprised to the upside. Software sales, meanwhile, haven’t beaten estimates since Q4 2022.

In short, GameStop is on the verge of generating more money from collectibles than video games. Collectibles’ share of segment revenues has more than doubled from 8.8% in the 2018 holiday quarter to 21% as of its most recent reporting period, where they were less than $16 million away from surpassing software revenues.

The less good news is that revenues in every single one of these segments are falling year on year — including collectibles. With GameStop’s shrinking footprint, having reduced its store count by nearly 60% since the end of 2017 and by roughly one-quarter over the past year, it’s tough for the top-line results to inflect higher.

As such, until we see GameStop post more consistent operating profits — or have bumper holiday earnings enough to offset losses in other quarters — this is still painting the picture of a challenged brick-and-mortar retailer. The biggest decision that will drive fluctuations in the bottom line over the near term is not one that has anything to do with video games or collectibles: how much bitcoin will management accumulate, and what will the price of that asset do?

Now, we could discuss what kind of valuation should apply to a company that finds itself in such a situation, but I’d rather go search for a PSA 9 or above 1st Edition Zapdos…