Gamestop is one of those disaster stocks, where the word “stop” in Gamestop resembles the activity of the stock. The mass activation of stop loss orders and the continued deterioration in company-specific fundamentals underscores to the extent to which investors have to be highly selective with their retail selection. Source: Freestockcharts It’s not that gaming is dead, it’s that retail gaming is a stop loss order waiting to happen. Instead investors should look to add to their short positions to ride this downward wave lower. Analysts are starting to revise financial models ahead of its earnings announcement. The funny thing? The entire consensus hasn’t made a move, and some of the big banks are already raising cautionary signs. Sometimes, it pays to follow the herd before the usual elephant stampede during earnings. Some notable analysts have moved to revise estimates lower ahead of earnings like Credit Suisse and according to them, “the company will likely report high single digit decline in terms of prior year software revenue comps.” The stock didn’t respond a whole lot to the Credit Suisse report because it was broadly anticipated that digital downloads would take a higher percentage of market share as many of the major publishers are reporting sales mix shift to digital downloads with PC platform titles heavily centered around Battle.Net, Origin, and Steam. However, it’s worth mentioning that a wave of revisions are likely, so just because the stock didn’t move in response to an analyst revision doesn’t mean it won’t happen in the future. After all, Credit Suisse is a little early as Gamestop won’t report its next quarterly until March. The Steam ecosystem in particular is aggressive with pricing on older game titles, which reduces the resale value on PC titles. However, excluding PC impact, the weakness in console gaming titles was also broadly anticipated as the game industry has relied more heavily on tent pole franchises to drive sales. The tent pole franchises however were the generic AAA titles that come from the major publishers so driving sales in brick and mortar was likely difficult as new game franchises weren’t really established in the past year. However, 2014 tended to be more spectacular due to the successful launch of Destiny, Titanfall, Sunset Overdrive (to name a few). In other words, the console gaming market stagnated and struggled to expand. Since Gamestop’s retail revenue is heavily dependent on industry dynamics to offset the transition away from physical media, the broader console themes have weighted more heavily in the minds of investors. The various reports from NPD added further weakness to the stock earlier in the quarter. So clearly, I believe the upcoming earnings announcement is a nuclear detonation waiting to happen. Credit Suisse has an estimate of $3.414 billion for sales, which is a full $156 million below consensus or a 4.48% sales miss. It’s the lowest estimate amongst the consensus currently and the explanation they offered within the report was logically consistent. In other words, the bank is moving its estimate below consensus and assuming they’re right (which I’m pretty sure they are), the stock will likely react as the remaining consensus is a little more aggressive on their PTs and estimates. This was driven by management’s aggressive stance on sales outlook for the upcoming quarter at flat to 6% positive for Q4’16. In other words, the next quarter is a total bust. The trend in digital, hardware and software is nothing short of awful.