GameStop (NYSE:GME) is undergoing a transformation that involves growing its collectibles, tech brands, and digital segments to become less reliant on video game hardware and software sales. For context on why the shift is necessary, check out the look at overall revenue and performance for its retail gaming categories across its past two fiscal years:

Metric Fiscal 2016 Fiscal 2015 Percentage Change
Total revenue $8.61 billion $9.36 billion (8%)
New hardware sales $1.40 billion $1.94 billion (27.8%)
New software sales $2.49 billion $2.91 billion (14.4%)
Pre-owned hardware and software $2.25 billion $2.37 billion (5.1%)

GameStop is facing falling software sales because of online competition and digital distribution, and its best earnings periods are tied to major console hardware launches. In response, the company is aiming to have 50% of its operating income derived from non-gaming sources by 2019.

Still, video games are the core of GameStop’s business for the time being, so let’s look at how the retailer views its near-term outlook in the space, with quotes from the company’s most recent earnings call, on March 23, coming from S&P Global Market Intelligence.

A video game controller resting on a wooden surface.
Image source: Getty Images.

There’s still demand for hardware

Despite the launch of Sony‘s (NYSE:SNE) PlayStation 4 Pro and PlayStation VR and Microsoft‘s (NASDAQ:MSFT) Xbox One S, 2016 was a tough year for GameStop’s hardware sales. Following their respective launches in 2013, combined sales for the PlayStation 4 and Xbox One platforms rapidly outpaced cumulative sales for their predecessor platforms, but sales are now slowing.

Lower unit sales combined with lower average selling prices weighed on GameStop’s hardware business last year, but the company still sees opportunities with the current generation of video game systems from Sony, Microsoft, and Nintendo (NASDAQOTH:NTDOY). Here’s CEO J. Paul Raines on the hardware market:

Now despite the physical decline, based on our research within our gaming community, the majority of gamers’ purchase intent for new consoles is high, with more than 50% of nonowners still planning to upgrade to a PS4 or Xbox One. Purchase intent for Switch and Scorpio is at PS4 levels or higher.

However, in spite of this positive outlook on demand for consoles, GameStop expects that hardware sales will be roughly flat this year, with the launch of the Nintendo Switch and Microsoft Scorpio systems likely to balance out declines from other elements of the category makeup.

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