GameStop Overheats In First Quarter Rally

GameStop Overheats In First Quarter Rally

Like so many other companies, GameStop (NYSE: GME ) has just released its first fiscal quarter earnings for 2022; and, like so many other companies, the numbers are fine, but not great. Sure, GameStop's Q1 report does intimate that earnings are up, slightly, from one year ago—from $1.27 billion to $1.38 billion—but they also reported $157.9 million in net losses. This is more than double the $66 billion net loss from the year prior.

GameStop Stock Wavering On Uneven Numbers

As could be expected, this news brought some uncertainty to the market following its release. A bevy of action on the floor caused GameStop Corp (NYSE: GME) shares to fluctuate between barely positive and barely negative through most of that trading day after the release of the Q1 report.

The key numbers extracted from the report include a loss per share of $2.08 on revenue of $1.38 billion. Last year, during the same period, GameStop reported net sales of $1.277 billion.

Out of this revenue, $673.8 million came from the sale of hardware (like game consoles and gaming accessories). While this accounted for just shy of 49 percent of all sales for the quarter, it was still down from the $703.5 million the company did during the same period last year.

On the other hand, GameStop manage to pull in another $483.7 million from software sales, which is far better than the $397.9 million they recorded from the first quarter one year ago. To round out the revenue, the entertainment retailer also sold $220.9 million worth of collectibles; this is also up from the $175.4 million they did in Q1 2021.

GameStop Switches Gears

While hardware sales were down last year, the numbers certainly suggest that consumers are not shying away from video games and their related merchandise. And this might serve to explain why GameStop also reported inventory at the close of Q1 came in at more than $917 million. This is nearly double the $570.9 million we saw at the close of the first quarter last year.

These stockpiles reflect the company' new focus on improving store inventory in anticipation of consumer demand. It also seems to imply an attempt to stay ahead of the persistent supply chain issues that have developed as a result of the post-pandemic recession.

This may have contributed to their strategy to launch a digital asset wallet that will allow gamers to send, receive, store, and use cryptocurrencies (and other non-fungible tokens) across a scope of decentralized apps. As a matter of fact, this new wallet extension will enable such transactions within GameStop's NFT marketplace, which is scheduled to launch sometime in Q2.

On top of that, GameStop has also ramped up hiring. They are particularly in search of those who have experience with specialties like blockchain gaming and also e-commerce technology and operations. This includes bringing on a brand new Chief Operating Officer with a respectable background in retail.

While this period of transition may not provide any definitive answers, the stock did jump upwards of 140 percent towards the end of Q1 and is now approaching $200 per share again. If this trajectory maintains, it could pay off wildly in the long run.

A Strong Start For The Year, But Only In The Long Term

Also in the first quarter report, GameStop showed a surplus in cash (and cash equivalents) in the range of $1.03 billion. Perhaps the most important data to come out of the report is the fact that they have no debt, aside from a few low-interest, unsecured term loans associated with Covid-19 government pandemic funds.

With all this in mind, GameStop has not released any official guidance on the rest of the year as CEO Matt Furlong has expressed caution during the transition. As a matter of fact, he notes, the company's main focus is to embrace necessary change in a way that will create “long-term stockholder value”.

At the end of the day, analysts warn that GameStop has very high short-term risk, as it will likely only be profitable in the very long term. As such, they advise to SELL; and alternately it would be smart to avoid buying, at least for the time being.


Companies in This Article:

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
GameStop (GME)$121.46-1.6%N/A-19.72Sell$88.00

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