GME stock rockets 34% on GameStop’s first profit since 2021
GameStop ( GME ) blew away fourth-quarter earnings expectations late Tuesday, reporting its second positive period in the past 12 quarters. Expectations were low, but as one of the first in the retail phenomenon known as meme stocks, the retailer’s earnings reports often attract unusual attention. GME shares rose on Tuesday ahead of the results.
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With physical video game sales declining, GameStop has reported losses in all but one of the past 11 quarters through results Tuesday. The losses were reduced in the last two periods, to 31 cents per share in the 3rd quarter. The holiday season is historically the video game retailer’s best quarter. But GameStop’s console, accessory and video game sales struggled in 2022.
Hardware and accessory sales averaged a 4.3% decline through the first three quarters of GameStop’s 2022 fiscal year. Software and video game sales averaged a 6% decline during that time as gamers increasingly switch for digital downloads.
And there wasn’t a major game 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 player preferences, with greater appetite for cloud, digital mobile and subscription,” Wedbush analyst Michael Pachter wrote in a research note Thursday, Barron’s reported.
Pachter noted that Sony’s PlayStation 5 had strong sales in the holiday quarter, but “a significant percentage of those units were sold directly to consumers.” He pointed out that GameStop’s non-fungible token marketplace launch has been underwhelming. But GameStop’s physical collectibles sales, such as Funko (FNKO) Pops!, may have done well for the quarter.
Pachter reiterated the underperform rating with a $5.30 price target for GME stock, which he first announced in December after third-quarter earnings. On Tuesday, shares traded above $17, down approx. 86% from the January 2021 high.
“Stocks remain at trading levels disconnected from business fundamentals due to irrational support from some retail investors,” he wrote.
GameStop revenue
GameStop smashed forecasts for Q4 results. Adjusted earnings rose to 16 cents per share, against a loss of 47 cents last year. Net sales fell 1.2% to $2.226 billion. Analysts had expected GameStop to report a loss of 13 cents a share on a 3.2% decline in revenue to $2.18 billion.
expects GameStop’s loss to narrow for the third quarter in a row, to 13 cents per share, compared to a loss of 47 cents last year. Wall Street is forecasting a third straight period of revenue declines, falling 3.2% to $2.18 billion.
Hardware and accessory sales increased 4.5% to $1.24 billion. However, software sales, which include new and used video game software, fell 9.5% to $1.82 billion.
GME shares
GME shares rose more than 34.5% to 23.75 after hours Tuesday following the results. GameStop shares rose 5.5% in pre-earnings trading. The GME share is down 3.5% so far this year.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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