GameStop shares close up 35.2%
Stock rockets on news of firm’s first profit in two years
Shares of GameStop soared as much as 53% Wednesday, initially heading for the stock’s biggest gain in two years, after reporting a surprise profit in the fourth quarter and beating analysts’ estimates for revenue.
Net income for the company was $48.2 million, its first profit in two years, compared with a loss of $147.5 million a year earlier, the Grapevine, Texas-based video game retailer said in a statement Tuesday. Net sales totaled $2.23 billion in the three months that ended Jan. 28, beating analysts’ projections of $2.18 billion.
By the closing bell Wednesday, GameStop Corp. had notched a 35.2% gain to $23.87 per share in New York. Shares of the company have traded as low as $15.41 and as high as $49.85 over the past year.
Very few analysts currently cover the so-called meme stock, which has fluctuated wildly over the past two years.
“GameStop is a much healthier business today than it was in the start of 2021,” CEO Matt Furlong said on a call Tuesday with analysts. “We have a path to fullyear profitability.” The company didn’t offer an outlook for 2023.
GameStop, known for its consumer electronics and gaming merchandise, has struggled with profitability as the games industry has moved away from physical discs to online downloads. The industry has been further hamstrung by supply chain constraints on consoles and a relatively light schedule of new game releases last year. U.S. video game sales dropped 5% in 2022, according to industry researcher NPD Group.
The video game industry is poised for a rebound this year with pent-up demand for games after many anticipated titles were delayed last year. The 2023 lineup includes Activision Blizzard’s continuation of Call of Duty: Modern Warfare II and Diablo 4, and Electronic Arts will release its next Star Wars game in April.
One bright spot in the quarterly results was GameStop’s business selling physical collectibles, an area the company has identified as a long-term priority. Sales in that category rose 12% to $313.2 million. Sales in the hardware and accessories category rose 4.6% to $1.24 billion, but software sales fell 15% to $670.4 million.
Activist investor Ryan Cohen joined GameStop’s board and became its chairman in 2021, embarking on a reorganization that included ousting the chief financial officer and companywide layoffs. The latest quarterly results showed that cost-saving efforts have begun to pay off.
Wedbush analyst Michael Pachter said GameStop managed expenses “exceedingly well,” but in the “longer term, the company cannot save its way to prosperity as new-gen hardware sales inevitably cool off and physical sales of video games continue on their multiyear downward trajectory, with that negative momentum buoyed by the growing appeal of mobile and subscription offerings for gamer hours and dollars.”
Supply chain delays early during covid-19 left GameStop with a backlog of inventory that had accrued during previously high demand of the early pandemic era. The company reduced inventory to $682.9 million at year’s end, down from $915 million from a year earlier.
A push into digital assets — the company announced a partnership with now-bankrupt cryptocurrency exchange FTX U.S. last fall, only to cancel it two months later — has so far produced mixed results.
Retail traders turned GameStop into a meme stock — those attracting cult-like followings by amateur traders — during the pandemic, wildly pumping up its share price based on social media chatter unrelated to the company’s fundamentals.