But a funny thing has happened: Short sellers are receding (in 2012 about 41 percent of shares were on loan), and Wall Street is expecting GameStop to report 5 percent revenue growth on Thursday. Still, that prediction does not mean the bears are wrong, analysts said, just that their timeframe is off.
"The bears are going to win over the long, long, long run; the physical games business is going to go away—but not in five years, or even in 10," Wedbush analyst Michael Pachter said. "I don't think it is a good short."
GameStop's 28.5 percent of shares outstanding on loan means that it is the second-most shorted stock reporting earnings this week, behind only Zoe's Kitchen, according to data from Markit.
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Short-sellers may be cheering recent industry trends, as video game sales overall are falling at the same time digital is beginning to take a foothold, Pachter said. Still, the company can expect up to five more years of sales growth from increasing market share before the trends catch up to it.
But it is not necessarily even true that digital's growth over physical game sales will continue forever, said B. Riley & Co. analyst Scott Tilghman. Game discs offer a clear value proposition to the gaming community because they offer portability (bringing a game to a friend's house) and they can be traded in for cash, he said. While the average trade-in nets about $20 for a gamer down the road, digital downloads are not often priced $20 lower than physical copies, he said.
"Gamers continue to vote with their dollars and they're voting for physical," Tilghman said.