GameStop (GME) blew away expectations for fourth-quarter earnings late on Tuesday, reporting its second positive period in the last 12 quarters. Expectations were low, but as one of the first in the retail phenomenon to be dubbed meme stocks, the retailer’s earnings reports often drew unusual attention. GME shares jumped ahead of results on Tuesday.
With physical video game sales slowing, GameStop has reported losses in all but one quarter leading up to Tuesday’s results. Losses fell in the two most recent periods to 31 cents per share in the third quarter. The holiday season has historically been the video game chain’s best quarter. But sales of GameStop’s consoles, accessories and video games struggled in 2022.
Hardware and accessory sales fell an average of 4.3% in the first three quarters of GameStop’s fiscal year 2022. Sales of software and video games declined by about 6% on average over that period, as players increasingly move to digital downloads.
And there was no major games console release this year to help juice results as PlayStation, Xbox and Nintendo systems have done in the past.
“Long-term headwinds include potential liquidity challenges and changing gamer preferences, with greater appetites for cloud, digital cellphones and subscriptions,” Wedbush analyst Michael Pachter wrote in a research note Thursday, Barron’s reported.
Pachter noted that Sony’s PlayStation 5 had strong holiday quarter sales, but “a significant percentage of those units were sold directly to consumers.” He pointed out that the launch of GameStop’s non-fungible token marketplace was disappointing. But GameStop’s physical collectible sales, such as Funko (FNKO) Pops!, may have done well this quarter.
Pachter reiterated the underperform rating with a $5.30 price target for GME stock, which he first announced in December following Q3 earnings. Shares traded above $17 on Tuesday, down about 86% from its January 2021 high.
“Shares remain at trading levels disconnected from the company’s fundamentals due to irrational support from some retail investors,” he wrote.
GameStop crushed forecasts for Q4 results. Adjusted earnings rose to 16 cents per share, compared to a loss of 47 cents last year. Net sales decreased 1.2% to $2.226 billion. Analysts expected GameStop to report a loss of 13 cents per share on a 3.2% drop in revenue to $2.18 billion.
expects GameStop’s loss to narrow to 13 cents per share for the third straight quarter, down from a loss of 47 cents last year. Wall Street forecasts a third consecutive period of revenue decline, falling 3.2% to $2.18 billion.
Hardware and accessories sales increased 4.5% to $1.24 billion. However, software sales, including new and pre-owned video game software, fell 9.5% to $1.82 billion.
GME shares rose more than 34.5% to 23.75 after hours Tuesday following the results. GameStop shares rose 5.5% in trading leading up to earnings. GME shares are down 3.5% year to date.
You can follow Harrison Miller for more stock market news and updates on Twitter @IBD_Harrison
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