3 Reasons to Dump Video Game Stocks


It's been a rough week for the video game industry.

The normal trickle of bad news has been more of a deluge since yesterday with at least three problematic developments taking place.

  • Shares of Take-Two Interactive dropped sharply lower this morning after it announced a Sept. 17 release date for Grand Theft Auto V. The highly anticipated release was previously targeted for a springtime release.

  • Electronic Arts may be moving higher today after posting mixed quarterly results last night, but let's not sugarcoat the top-line slide. Revenue fell sharply as the modest uptick in digital revenue wasn't enough to offset plummeting sales elsewhere.

  • Yesterday it was Nintendo disappointing investors. It has sold just 3.06 million Wii U units since November's debut, and now expects to move just 4 million units in its fiscal year ending in March. It was originally projecting 5.5 million Wii U consoles. It's not just the freshman system coming up short. Nintendo's scaling back 3DS expectations -- from 17.5 million down to 15 million -- for the year. Naturally, all of this means fewer Nintendo games will be sold.

It's not pretty. Just when you think that the industry has bottomed out after three years of declining sales, the brittle floor cracks, sending confused gamers down to an even lower level.

GameStop kicked off this unfortunate month by hosing down its same-store sales guidance for the fourth time over the past year. At least the hardware and software companies could have taken solace in knowing that GameStop is merely a middleman retailer. The chain will continue to fade as the industry reaches gamers directly through digital distribution.

However, EA's top-line weakness and Nintendo slashing its own forecasts suggest that the industry's still in a funk. Whether it's a matter of mainstream gamers settling for social or casual games or folks just losing interest in the genre, don't call bottom until you hear a thud.

EA is in the game
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The article 3 Reasons to Dump Video Game Stocks originally appeared on Fool.com.

Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard, Nintendo, and Take-Two Interactive. The Motley Fool owns shares of Activision Blizzard, GameStop, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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