Mohit Oberoi
GameStop (NYSE: GME) released its earnings for the fiscal third quarter of 2022 ending October 29 yesterday after the markets closed. The company missed both the topline and bottomline estimates but the stock is flat in US premarkets today
GameStop reported revenues of $1.186 billion. Sales fell 8.5% YoY which makes it the worst sales decline in two years. The metric also trailed analysts’ estimate of $1.39 billion.
Looking at a breakup of GameStop’s third-quarter revenues, hardware and accessories sales fell 6.4% to $627 million while software sales plunged 19% YoY to $352.1 million. The company said that it suffered a $50 million headwind from adverse currency movements.
Meanwhile, GameStop said that sales from new and expanded relationships were strong. Sales of collectibles also rose 7.9% YoY to $207.3 million in the quarter.
GameStop is facing several headwinds. The macro-environment has been challenging and gaming demand has especially taken a hit. Nvidia’s Gaming revenues fell by more than half in the most recent quarter.
Also, no major hit titles were released in the quarter which took a toll on GME’s revenues. The company’s SG&A (selling general and administrative) expenses as a percentage of sales were 32.7% in the quarter which is below the 34.1% that it reported in the previous quarter.
The company has taken several steps to lower costs and has laid off an unspecified number of employees. During the earnings call, GameStop CEO Matt Furlong said, “We’ve also taken additional steps in recent weeks to further reduce SG&A on a go-forward basis now that significant improvements have been made to the core business.”
GameStop Posted Wider Than Expected Loss in the Third Quarter
Meanwhile, GameStop continues to post losses and in the fiscal third quarter, it posted a net loss of $94.7 million. Its per-share loss of 31 cents was wider than the 29 cents that analysts were expecting. The company has now posted losses for seven straight quarters.
Notably, GameStop has been trying to transform its business ever since Ryan Cohen started taking an active interest in the company. In September it announced a partnership with now-bankrupt cryptocurrency exchange FTX.
While GME is positive on the long-term outlook for digital assets, it clarified during the earnings call that its current exposure to them is minimal. Furlong said, “we have not, and will not, risk meaningful stockholder capital in the space.” While the crypto market is currently in turmoil, many crypto bulls see it rebounding. There is a beginner’s guide about cryptocurrencies.
At the end of the fiscal third quarter, GameStop had $1.04 billion cash and cash equivalents on its balance sheet. Thanks to the multiple rounds of capital raise amid the meme stock mania, GME is now a debt-free company. During the earnings call, GME said that the company might look at strategic acquisitions.
GameStop Highlights Long-Term and Short-Term Priorities
During the earnings call, Furlong highlighted the company’s strategic priorities. In the short-term he said, GameStop is looking to turn profitable. Over the long term, Furlong said that the company is looking at “driving pragmatic growth.”
The company spent $13 million on capex in the third quarter which was $0.5 million higher than the corresponding quarter last year. Furlong added, “We anticipate capex will remain at similar or reduced levels now that the company has largely completed its period of heavy investment.”
The company did not provide any formal guidance and as has been the case for two years now, did not take any analyst questions during the earnings call.
Furlong meanwhile commented on the ongoing transformation calling it “unprecedented in the retail sector. He said, “We’re seeking to transform a legacy brick-and-mortar business that was on the brink of bankruptcy into a retailer that meets customers’ needs through our stores, e-commerce properties, and emerging sales channels.”
He added, “This path carries risk and is taking time, but it is the path we are on.”
GME Is Still a Meme Stock Darling
GME was the flagbearer of the meme stock trade. It is still popular among meme stock traders who see GameStop stock as a good buy. Wall Street analysts meanwhile do not buy the optimism. Before GameStop’s earnings release, Wedbush analyst Michael Pachter advised selling the stock saying its stock is price disconnected from the fundamentals.
After the earnings, he reiterated his bearish views and said, “They managed working capital well, so they didn’t burn much cash, but they still had a loss of about $95 million. That’s unsustainable unless they get profitable one of these days, and directionally, it doesn’t look like that’s going to happen.”
All said Wall Street analysts and retail traders have had differing views of GameStop for quite some time. While analysts see the stock as overvalued, retail traders see it as a genuine turnaround story under the stewardship of Cohen.
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This article was written for Business 2 Community by Mohit Oberoi.
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