GameStop Tumbles on Video Game Sales

NEW YORK (TheStreet) -- Video games finally saw a boost in September after six straight months of declines, but GameStop(GME Quote), one of the biggest video game retailers, is nonetheless one of the biggest losers of the day.

Shares of GameStop are plunging 7.5% to $26.03 in early afternoon trading after it was downgraded to neutral from buy.

Janney Montgomery Scott analyst Tony Wible said the weak near-term outlook for video game sales puts GameStop on track to report a 4% drop in third-quarter sales, down from his previous estimate of a 3.1% gain.

Wible said he fears GameStop will have to rely more on discounted games to drive traffic to stores rather than full-priced new titles.

On Monday evening, the NPD Group, a market research firm, said video games in September inched up 1% to $1.27 billion, but this was still well below Wall Street's forecast. Year-to-date sales are down 13%.

Sales of video game hardware tumbled 6% to $472.3 million, and for the first time since its launch three years ago, Sony's(SNE Quote) PlayStation 3 was the winner, selling more units than Nintendo's Wii and Microsoft's(MSFT Quote) Xbox 360.

Sales of Playstation 3 more than doubled from last year, mostly due to price decreases. Sony cut prices on the unit by $100 in August.

Shares of Sony are tumbling 1.9% to $28.96, while Microsoft is down 1.3% to $26.02 in morning trading.

Next: Netflix Benefits as Game Makers Cut Prices

-- Reported by Jeanine Poggi in New York

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