Is GameStop’s big bet on NFTs busting? -Nasdaq | Jewelry Dukan

GameStop‘s (NYSE: GME) The current turnaround strategy is still fairly opaque to investors, but what we’ve seen has mostly focused on non-fungible tokens, or NFTs, the digital ledger technology that confers a right of ownership or use of a digital asset.

In May, video game retailer GameStop introduced self-custody wallet ether Wallet that a user controls and can access without leaving their browser, followed in July with an NFT marketplace where tokens can be bought and sold.

Image source: Getty Images.

It remains a mystery how GameStop will survive, let alone thrive, in a video game industry that is increasingly shifting to digital and downloaded gameplay. But Chairman Ryan Cohen seems to think it involves driving the trending cryptocurrency and NFT markets.

Unfortunately, it also looks like the NFT idea could be a failure, and puts GameStop’s own future in question.

Decaying Crypto

Cryptocurrencies and NFTs are in free fall. Bitcoin, the largest crypto by market value, is down 60% in 2022 to $19,000, while the second largest crypto, Ethereum, is down 64%. Volumes on NFT marketplaces are also collapsing, with Opensea, the most popular marketplace, evaporating 90% of its volume through August.

GameStop’s marketplace is faring no better this crypto winter. The platform got off to a fast start in its first week of business, generating close to $2 million in first-day transactions, and the top 50 collections saw more than $7.5 million in first-week transactions. But that was about as good as it got.

Based on transaction fees of 2.25% GameStop fees, GameStop NFT generated approximately $44,500 in revenue on its very first day of operation on sales volume of $1.98 million. However, Cointelegraph reports that the NFT fell to just over $3,750 in daily earnings on $167,000 in volume by the end of August and has continued to decline ever since. Data from Dappradar shows that volume has dropped to $85,000 in the last 24 hours, making fee revenue just $1,912 per day. Average prices are also declining, down 22% over the last month.

If GameStop was hoping NFTs would give it some leeway until it figured out what to do with its video game retail business, it seems to be crumbling.

The Declining Role of NFTs in Gaming

NFTs are falling out of favor in general, and even in GameStop’s core business, gaming companies are suddenly backing out of their adoption of the technology.

Bloomberg Notes Studios dived headlong into NFTs at the height of their popularity, believing that the tokens could offer players a way to own their in-game won or purchased digital bounties while also creating a new revenue stream for themselves. But now they’re running away.

Minecraft Developer Mojang has banned companies from creating NFTs for its game and refuses to build Minecraft worlds on blockchain networks, reversing previous decisions to explore their potential. UbisoftCreators of some extremely popular titles such as Ghost Recon and Assassin’s Creedhas also withdrawn from pursuing an in-game NFT marketplace.

Bloomberg says so afterwards Take Two Interactive Bought Zynga for its blockchain potential since then, has carefully avoided discussing it at every quarterly earnings conference.

If gaming companies want little to do with NFTs and crypto, how will video games retailer GameStop make it a viable part of its own business?

A foundation built on sand

All of this does not bode well for the future of the retailer. GameStop has only survived this far by cleverly exploiting its meme stock status and raising a ton of cash to pay off its debt. Though the company is steadily losing money right now ($267 million last quarter), it won’t be depleting its bank account anytime soon (it still has nearly $1 billion in cash and equivalents).

Even so, GameStop needs to develop a realistic vision of how it will grow its business. NFT marketplaces and crypto have always been risky ventures to build a recovery on. Now that even gaming companies are pulling back from them, investors can better see that it’s best to stay away from GameStop stock until it puts a viable plan on the table.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Take-Two Interactive. The Motley Fool recommends Ubisoft Entertainment and recommends the following options: long January 2023 $115 calls at Take-Two Interactive. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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