By Tomi Kilgore
Shares of GameStop Corp. suffered a seventh-straight to an 11-month low on Wednesday, after Jefferies analyst Stephanie Wissink said the Microsoft-Activision merger could pose a “walled garden risk” for the videogame retailer.
The “meme” stock /zigman2/quotes/203755179/composite GME -7.26% shed 2.2% to $106.57, the lowest close since Feb. 26, 2021. It has tumbled 24.2% amid a seven-day losing streak, which matched the longest stretch of losses the stock has suffered since the 11-day streak that ended Nov. 7, 2017. There have been two other 7-day losing streaks since then, ending on Aug. 4, 2021 and April 13, 2021.
Wissink said the $68.7 billion deal for Microsoft Corp. /zigman2/quotes/207732364/composite MSFT -0.40% to buy Activision Blizzard Inc. /zigman2/quotes/200717283/composite ATVI -0.22% announced Tuesday is a “game changer,” as it speeds up the digitization of gaming.
She reiterated the hold rating she’s had on GameStop since October 2020, but lowered her stock price target to $100 from $145.
“Both MSFT [Microsoft] and ATVI [Activision] are key vendors to GME [GameStop] and a merger would strengthen their combined power to alter economics, merge data and leverage verticalization across hardware and software,” Wissink wrote in a note to clients. “Should Microsoft elect to make Activision’s ‘triple-A’ titles exclusive to Xbox, it would impact a key source of new software sales volume for GME.”
She said that while Microsoft indicated it wasn’t planning a single-centralized gaming metaverse, “the combo of MSFT + ATVI aggregating content and properties within their specific ecosystem could pose a potential walled garden risk to GME.”
Basically, Wissink said GameStop management had already realized that the digitization of gaming was a growing risk, as the “ unique downstream deal ” with Microsoft announced in the fall of 2020 indicated, but the merger speeds things up.
“Microsoft’s agenda to win this cycle was being seeded; [Tuesday’s] announcement takes it to a whole new level,” Wissink wrote. “Unfortunately, we don’t see GME’s role as enhanced, at least not initially.”
GameStop’s stock has plunged 42.2% over the past three months but has still soared 172.4% over the past 12 months, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.81% has gained 17.7% over the past year.