Company / Analytics

Analytics, 24 March 2021

GameStop earnings and Outlook explained

Video games retailer GameStop reported earnings that fell short of analyst’s expectations, even though online sales offered some hope. Tuesday’s earnings report is GameStop’s first since a Reddit-fueled trading frenzy in late January took its stock on a rollercoaster ride, exposing a stark divide between investors betting that the struggling retailer’s performance will worsen and those counting on a comeback.

Read our brief on GameStop earnings and outlook, which also explores whether you should invest in the stock.

Earnings Report

GameStop reported net sales of $2.1 billion during the quarter, down 3% from the same period last year. This was slightly below the $2.2 billion analysts expected. Net income hit $80.5 million, or $1.19 per diluted share — well below analysts’ projections but a significant improvement from the $21 million in net income it earned during its fiscal fourth quarter last year.

For the full year of 2020, GameStop posted a net loss of more than $215 million. On the positive side, GameStop’s global e-commerce sales increased 175%, representing 34% of total net revenue during the quarter. During the same period last year, e-commerce made up just 12% of total sales.

The increase in online sales bodes well for the company’s effort to transition relying more on online sales, a move that is especially important given that it closed a net of 693 stores during 2020. It now has 4,816 stores globally.

GameStop plans to improve its e-commerce and customer experience, by increasing the speed of delivery, providing superior customer service, and expanding its catalogue, according to its CEO George Sherman.

How did GameStop stock move?

GameStop stock initially jumped more than 5% in after-hours trading following the release, before reversing to fall more than 10%. While corporate earnings calls are typically dry events attended mostly by analysts and reporters, GameStop’s Tuesday call hit max capacity and stopped allowing in additional listeners more than an hour before it began, reflecting the high-interest investors – both amateur and veteran investors - have in the stock.

Investors have been waiting to see the company’s performance since January when Reddit-fueled trading frenzy took GameStop’s stock on a rollercoaster ride.

While the stock has fallen its wild peaks in January, many investors haven’t given up. On Tuesday, GameStop shares closed down nearly 7% at $181.75 but were still more than 850% higher than where they started this year.

GameStop future plan and Outlook

GameStop’s earnings came amid an executive shakeup. In a separate press release, GameStop said it had appointed Jenna Owens as chief operating officer, with a start date of Monday, March 29. Owens was a director and distribution manager Amazon.com Inc and also held roles at Google and Honeywell and could be key in helping the company execute a strategy its CEO Sherman outlined Tuesday to update its US distribution network and speed delivery times.

The company also named Neda Pacifico, who was an executive at Chewy Inc., as senior vice president of e-commerce.

Many of the amateur traders who invest in GameStop derive their confidence from the 35-year-old billionaire Ryan Cohen, who sold his online pet retail company Chewy to Petsmart in 2017 and revealed a major investment in GameStop last year. Many investors hope Cohen will help make the gaming retailer a more formidable competitor in the e-commerce age.

Should I buy GameStop Stock?

While analysts are optimistic that GameStop will return to profitability in 2021, thanks in large part to the launches of popular new gaming consoles, many are not recommending GameStop’s stock currently because the Reddit-fuelled trading activity “has spiked the share price to levels that are completely disconnected from the fundamentals of the business.”

GameStop provided no financial guidance for 2021. But CEO Sherman detailed several strategic initiatives aimed at turning the business around in 2021. Among those efforts is a plan to establish a US-based customer care operation, focused on providing exceptional customer service levels across all channels regardless of where, when, or how our customers shop with GameStop. This will be accomplished through a technology-driven approach and a streamlined retail footprint.

GameStop is also looking to expand its product offerings beyond video games and consoles by adding PC gaming products, computers, monitors, mobile gaming, and gaming TVs. Such product offerings could expand the company’s addressable market by “over five times.,” according to GameStop CEO.

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