It’s a big day for GameStop (NYSE: GME), the video game retailer that expanded into electronics, became a meme, went to the moon, then lost most of its huge winnings. Today it released earnings, and the news was mixed but encouraging enough for investors to trigger a rally.

The news was not all bad, nor all good. Earnings per share turned out to be a surprise winner, of sorts. The company recorded a loss of $0.35 per share. TipRanks consensus estimates called for a loss of $0.41 per share. Revenues, however, proved disappointing. The company posted a profit of $1.14 billion, although the consensus was for $1.27 billion.

I’ve been bearish on GameStop for a long time, and nothing I’ve seen today has changed that perception. I marvel at how long this business has lasted, despite so much work against it.

Its business model is in tatters and its hopes for the future are dim. Add to that deteriorating macro conditions, and the end result is the only reason I have to stay away from this one.

The last 12 months for GameStop stocks have been mostly bumpy. A year ago around this time, stocks were up about $50. In late November, they briefly topped $60. These gains didn’t last long and in March 2022 GameStop fell to just under $19. More ups and downs followed, leading us to today, where shares are trading at around $26 per share.

What is the forecast for GME Stock?

When it comes to Wall Street, GameStop has a moderate sell consensus rating. This is based on an attributed sale within the last three months. GameStop’s price target of $7.50 implies a downside potential of 68.8%.

Investor sentiment features bullish insiders, bearish all others

Pessimism about the future of GameStop runs throughout the investment ecosystem. GameStop currently has a smart score of 1 out of 10 on TipRanks. This serves as both the lowest score and the lowest “underachievement” level. So, it’s clear that most investors aren’t looking for big wins with GameStop.

However, there is one place where some optimism reigns, and it’s one of the weirdest places of all: insider trading. Insider trading at GameStop is heavily weighted to purchase and has been for months. Although none of the purchases were an informative purchase, the aggregate numbers offer some insight here.

Over the past three months, buy trades have outpaced sell trades by six to one.

The picture looks even brighter looking back over the full year, where buyers again led sellers, this time by 11 buy trades to three sell trades. However, to find an informative purchase, you have to go back six months.

The only real problem with GameStop is GameStop

As I mentioned before, I’m still amazed that this company is still around. Its business model is inherently under threat, and that model only gets worse when you add massive inflation and terrible economic conditions to the mix.

GameStop’s main stock in trade consists of new and used video games. Used video game sales were a great idea, allowing customers to buy older games at comparative discounts and also trade in their old games for credit for new ones.

It was a perfectly self-contained model; people bought new games and redeemed them later, at least getting credit for other new games. Then GameStop would mark used games, selling them for far more than they paid to get them. Old games could even be traded in later to be resold for extra profit.

In fact, the only thing that could derail this profit line would be for most people to buy online games directly from publishers or from a centralized hub run by the system platform itself – and c is what happened.

Just look at Microsoft (NASDAQ: MSFT) Xbox One S for proof of that one. The Xbox One S does not have a disc drive. While previous game consoles offered added value by allowing users to play DVD or Blu-Ray discs, the Xbox One S offered a discounted gaming experience by only offering digital game downloads.

While the slightly more advanced Xbox One X continues to allow disc access, finding one available for purchase has been a challenge over the past couple of years.

Before that, Microsoft made digital game downloads easy for years. Its Xbox Live platform, along with its more recent Xbox Cloud Gaming, has paved the way for integrating digital downloads into everyday gaming. It also made GameStop much less relevant.

As recently as February, studies of the gaming industry revealed that physical games are an endangered species. Ars-Technica found that the total number of physical game releases has been declining and has been since at least 2018.

In 2018, there were 321 physical game releases. In 2019, that number fell to 307. In 2020, it fell to 233, and just last year that number fell back to 226.

Fewer physically purchased games and fewer physically available games taint GameStop’s entire business model. While he made efforts to break out of this death spiral — made possible by the influx of cash from meme investors — those efforts weren’t exactly effective.

Its shift to online operations hasn’t helped sales much, especially with big platforms like Microsoft offering their own outlets. Its move to non-fungible tokens (NFTs) has had some success, but it has been limited.

After an initial surge of interest, consumers left in droves, leaving GameStop to take a sales share of around $140,000 in revenue for 30 days of operation.

GameStop is doubling its digital asset sales, however. Earlier today, he announced a new partnership with FTX US. The move seems to bring more attention to GameStop’s line of digital assets. Meanwhile, some GameStop stores will start offering FTX gift cards.

Conclusion: low appeal, multiple risks, a bad idea

Right now GameStop is in a terrible position. It is trading multiple times above its lower and higher price targets, suggesting that the stock’s value is no longer clearly tied to fundamentals. It faces a growing number of competitors in its online business, and its retail storefronts don’t have much room for growth.

With GME’s main stock dwindling in trade, trying to find a replacement will be a difficult task. Either that or the company will have to shut down a lot of storefronts just to stay above water.

The latest earnings report won’t do it any favors either. It came out ahead of the consensus, yes, but it still generated negative earnings. It hasn’t posted a positive quarter since March, and that was clearly helped by the holidays.

Its forays into NFTs haven’t gone far, and while it’s accelerating its momentum in digital asset sales, it’s hard to see how well digital images will sell in an environment where people already have enough trouble keeping the lights on and the kids fed. That’s the whole reason I have to stay out of GameStop, and that’s why I’m bearish.

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