GameStop Corp. (GME) shares fell more than 13% to a 14-year low ahead of Wednesday's opening bell after the video game retailer beat fourth quarter earnings estimates by two cents but missed revenue estimates by nearly 7%. The company also lowered first quarter and fiscal year guidance, now expecting a 5% to 10% annual revenue decline. Same-store sales increased 1.4% during the quarter, but that number was affected by a 2018 accounting change.

The brick-and-mortar retailer also completed a review of strategic and financial alternatives, advising it will focus on a profit improvement initiative that includes debt retirement and other cost savings, seeking to increase operating profits by $100 million. However, those efforts aren't expected to improve fiscal year 2019 results. The disclosure also made it clear that GameStop found no one to buy the company even though a takeover was a stated goal in January's report.

The video game industry's transition from storage media into direct downloads has hurt GameStop badly, with lightning-fast connections allowing console manufacturers and PC upstarts like Steam to make new purchases available for download directly onto hardware. More ominously, Alphabet Inc's (GOOGL) just-announced Stadia initiative compounds GameStop's struggle for survival, with the service from the internet juggernaut capable of streaming state-of-the-art games from the cloud without downloading.

The Google news has eased selling pressure in the big three game producers Electronic Arts Inc. (EA), Activision-Blizzard, Inc. (ATVI) and Take-Two Interactive Software, Inc. (TTWO), which may become takeover targets as tech giants consolidate the gaming industry into a new profit stream. There's no place for lowly GameStop in these futuristic business models, raising the odds that it will eventually find a take-under suitor or permanently close its doors.

GME Long-Term Chart (2003 – 2019)

Long-term chart showing the share price performance of GameStop Corp. (GME)

The company came public at $9.93 in February 2002 and topped out in the low teens a few months later. The subsequent decline posted an all-time low at $3.83 in February 2003, a price level that may come into play in the coming months. The stock turned sharply higher during the mid-decade bull market, hitting an all-time high at $63.77 in 2007, and it sold off into the upper teens during the 2008 economic collapse.

GameStop shares struggled after the bear market, stalling in the lower $30s ahead of range-bound action and a 2012 breakdown at 2008 support. Committed buyers emerged a few months later, entering a strong recovery wave that failed at the .786 Fibonacci sell-off retracement level in 2013. It then eased into a slow but brutal downtrend, breaking the 2012 low in March 2018. The sell-off paused in April and resumed in September, dumping the stock to the lowest low since 2004.

The downtrend entered a declining channel (red lines) in January 2016 and continues to trade within its broad boundaries as we head into middle of 2019. Channel support has now roughly aligned with the 2003 all-time low near $4.00, marking a logical price target in the coming months. Any bounces that test April 2018's broken low at $13.49 should offer low-risk short sales in this price structure, unless acquisition talks generate the uptick.

The monthly stochastics oscillator has now dropped into the most extreme oversold reading in the stock's public history, setting off a contrary buying signal. Meanwhile, the on-balance volume (OBV) accumulation-distribution indicator has held well above deep lows posted between 2014 and 2018. This marks a bullish divergence that could trigger a bullish stochastics crossover and short squeeze in the coming months. In turn, that uptick could mark the last opportunity for long-suffering shareholders to cut major losses.

The Bottom Line

GameStop shares fell to a multi-decade low after the retailer reported a major revenue decline and lowered 2019 guidance on Tuesday evening. However, the stock is extremely oversold and could squeeze overeager short sellers in the coming weeks. Unfortunately, that bounce is likely to fail in the lower teens without a merger or takeover by a well-financed operation.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.