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Why GameStop Shares Plummeted by Over 10% on Monday

What happened

Even on a sharply downbeat day for the stock market, GameStop (NYSE: GME) was a real flop. The video game retailer's shares cratered by 10.3% on Monday. Investors, it seems, aren't taking kindly to the company's newly announced financing services.

So what

GameStop just unveiled its FlexPay suite of hardware and game rental services. These comprise three offerings: buy now, pay later; no-fee layaway, and rent to own.

GameStop is partnering with a trio of specialist companies to offer these options: up-and-coming fintechs QuadPay and Klarna for the first two, and lender Progressive Leasing for the third.

Image source: Getty Images.

Several commentators have been sharply critical of these offerings, describing one or more as a "scam" and "disgusting" for those with credit issues. Author Derek Strickland, on the TweakTown gaming website, writes that he did a quick calculation on a rent-to-own arrangement for a $499 gaming console.

"The results were absolutely mind-blowingly bad," Strickland wrote. "Assuming you don't have any credit, buying a $499 console with Progressive Leasing with payments across 12 months would cost $1,181.75 in total."

Now what

GameStop had been a wobbly business even before the coronavirus pandemic swept the world and started keeping consumers away from retail stores. The company's foundational brick-and-mortar sales model isn't very effective in this Age of the Download.

It's admirable that management is trying to devise new revenue streams. These sharp criticisms of the new programs aren't going to help, though.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends GameStop. The Motley Fool has a disclosure policy.


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