Topline
Grapevine, Texas-based GameStop reported fourth-quarter earnings after the bell Tuesday that fell in line with analyst expectations, fueling bullishness among Reddit traders in the firm’s first quarterly report since its near 2,000% surge in January.
A GameStop in New York City.
Key Facts
The long-struggling brick-and-mortar gameseller posted fourth-quarter revenue of about $2.1 billion–just short of the $2.2 billion analysts were expecting but also nearly as much as revenue in the same period last year, before the chain closed roughly 12% of stores.
Adjusted earnings, on the other hand, were in line with expectations, totaling $90.7 million, or $1.34 per share–nearly 10% more than income of $83.8 million in the fourth quarter of 2019.
Early Tuesday morning, GameStop announced chief customer officer Frank Hamlin will resign on March 31 after less than two years in the role, marking a second executive departure since billionaire activist investor Ryan Cohen, the cofounder and former CEO of booming pet supplies company Chewy, joined GameStop’s board in January.
Ahead of the earnings report, Bank of America analyst Curtis Nagle said he expects “an underwhelming quarter” in light of disappointing holiday sales; he reiterated an underperform rating and a price target of $10–roughly 95% below current levels.
Nagle also highlighted positives for GameStop–including a digital revenue-sharing arrangement with Microsoft, Cohen’s board appointment and the recent senior leadership changes to spur a digital transformation–but he noted that “no detail has yet been given on the cost, timeline, strategic points and impact to earnings from a turnaround plan.”
GameStop shares ended Tuesday down 7%, but climbed 2% in after-hours trading immediately after the earnings release; shares are up a staggering 4,300% over the past year.
Tangent
In a statement accompanying the earnings release, GameStop announced the appointment of Jenna Owens as chief operating officer. A former executive at Amazon with nearly two decades of tech experience, Owens is set to start March 29, about one month after former Amazon Web Services executive Matt Francis joined GameStop as chief technology officer. Two other senior hires were announced Tuesday, including a former Chewy vice president.
Key Background
GameStop’s unlikely surge has continued with a vengeance (and volatility) since Reddit traders declared it their meme stock of choice in January, as they plowed into Wall Street’s most heavily shorted companies. The plight of brick-and-mortar retailers hit GameStop particularly hard over the past decade, wiping out nearly 90% of the stock’s gains through the end of 2019. That began to change at the tail-end of last year, as 35-year-old Cohen started buying up shares and lambasting management for “lack[ing] the mindset, resources and plan needed to [help GameStop] become a dominant sector player.” Cohen and a couple of his Chewy colleagues earned seats on GameStop’s board in January and have mounted an effort to usher in a digital transformation and restructuring at the firm, fueling bullishness among Reddit traders expecting the turnaround. Tuesday’s report gives a first–and early–glimpse into how that’s shaking out.
Chief Critic
“GameStop currently has a significant cash position that we expect to be used to pay down debt and repurchase shares,” Nagle said in a note Friday. “However, with the risk that free cash turns negative over the next few years, support from capital return will ultimately fade and likely be overwhelmed by persistently declining operating earnings.”
Surprising Fact
The average analyst price target for GameStop shares, from seven issuing such guidance, stands at about $15–92% below the stock’s current price.
Further Reading
GameStop Adds Another $3 Billion In Market Value After Tapping Billionaire Investor To Head Digital Transformation (Forbes)
