GameStop reports 7th quarter loss, but analysts warn there's a lot to come
GameStop Corp. reported its seventh consecutive quarterly loss after the market closed on Wednesday and highlighted its goal of returning to profitability in the near term, but analysts warn there are plenty of challenges ahead.
GameStop GME CEO Matt Furlong said on a conference call late Wednesday that they were very focused on repairing our decayed foundations throughout 2021 and 2022. Furlong also described headcount reductions in the second half of 2022 and said that GameStop is a stronger business than at any time in the recent past.
After Thursday s open, analysts weren't convinced that the company's efforts to reshape itself had delivered results, while shares rallied more than 6%.
In the note released on Thursday, Wedbush analyst Michael Pachter wrote that GameStop has proved to be fruitless so far, as was the announcement of reductions in the company's corporate headcount in the back half of the year. Short-term headwinds include poor results for its NFT non-fungible token marketplace, a contraction of the NFT space, ongoing hardware constraints and cash burn. GameStop entered the NFT marketplace earlier this year when it forged a partnership with Immutable X Pty Ltd. to create a fund of $100 million in Immutable X's IMX token.
NFT sales volume was at a record low after a 20% drop in November.
The videogame retailer also faces long-term headwinds, including liquidity challenges and an industry shift towards digital downloads, according to Pachter.
He lowered his GameStop price target to $5.30 from $6 against this backdrop. He has an underperform rating on the shares of GameStop.
Other analysts have also noted the difficulties facing the company. In a note released on Thursday, Colin Sebastian wrote that Baird analyst Colin Sebastian said that the revenue and earnings shortfalls in the third quarter reflect ongoing challenges to the GameStop retail model and limited progress on new initiatives. There was no mention in the release or conference call regarding the company's much-publicized NFT marketplace initiative, nor is the company sharing specific data on the e-commerce transition. Baird expects to see more store closures and headcount reductions from the company. Sebastian wrote that GameStop's increasing focus on operating efficiency makes sense given secular headwinds and limited progress that we can tell on key strategic initiatives.
The analyst said that the company may benefit from improving supplies for all major consoles during the holiday period and into next year. An increase in new game launches could be a good thing on a seasonal basis.
GameStop, like its fellow meme stock AMC Entertainment Holdings Inc., was a major beneficiary of the meme-stock buying frenzy in January 2021, which sent the company's shares skyrocketing to dizzying heights. Between January and March 2021, GameStop's stock price increased more than 1,200% and the company's market cap exceeded $17 billion.
The stock of GameStop has dropped 40% this year, beating the S&P 500 s SPX, which had a decline of 17.5%. The company's market cap is now around $7.1 billion.
In August, the company added GameStop to its list of zombie stocks and highlighted the cash burn as an issue, according to the independent equity-research firm New Constructs.
The most recent quarter of GameStop ended up with $1.042 billion in cash, cash equivalents and marketable securities. GameStop's long-term debt remains limited to a low-interest, unsecured term loan associated with the French government's response to COVID-19, the company said.
One of three analysts surveyed by FactSet has a hold rating and two have a sell rating for GameStop.