Company / Analytics

Analytics, 09 June 2021

GameStop Q1 Earnings: What to Expect

Meme-frenzy stock GameStop (GME) will report earnings after market close on Wednesday. Driven by the momentum in meme stocks, shares of GameStop have risen 60% higher over the past thirty days, skyrocketed 1270% year to date, and are up 1500% in the past six months. But investors want to know whether the company has a working business model beyond the social media-driven stock mania.

The earnings will likely reflect improved sales and narrowing losses even as many investors fixate on the company’s “meme stock” clout over business performance.

GameStop earnings

GameStop’s meme-fueled rise faces another test today as the company behind the fanfare reports its quarterly earnings. Infused with an enormous amount of capital, and under the gaze of a skeptical world, the company will try to prove the worth of its bizarre $300 stock price.

For the quarter that ended January, Wall Street expects the Grapevine, TX-based company to lose 71 cents per share on revenue of $1.16 billion. This compares to the year-ago quarter when the loss was $1.61 per share on revenue of $1.07 billion. For the full year, ending in January, the loss is expected to be 69 cents per share, up from a loss of $2.14 per share a year ago, while full-year revenue of $5.48 billion would rise 7.7% year over year.

The Reddit-induced explosion in the stock and various subsequent declines suggests that fundamentals don’t currently matter. But will they eventually? The uncertainty in that question is one reason Bank of America analyst Curtis Nagle, who had an Underperform rating and $10 price target on the stock, recently pulled its coverage on the company.

“Up until the last several weeks, GME’s trading daily trading volumes and Reddit mentions had declined materially,” noted Nagle. “However over the past seven trading days, there has been a resurgence in mentions and volumes which have corresponded with a 56% increase in GME’s share price.” In other words, GameStop does not trade on fundamentals and its share price is highly correlated to how often its name is mentioned on Reddit. But it’s not all about Reddit. Investors are excited about the new gaming cycle from Microsoft’s Xbox and Sony’s Playstation.

Reports suggest demand for consoles is currently outpacing supply. Ordinarily, this would bode well for GameStop, but the brick-and-mortar retailer, often referred to as the “next Blockbuster Video,” must quickly pivot its business to capture the interest in online gaming. The post-earnings call will be closely watched for any commentary about what is expected in the quarters ahead. GameStop has been reluctant to cash in on its newfound success, issuing only 3.5 million new shares of stock while fellow meme craze AMC Entertainment has issued more than 100 million new shares since the trading frenzy began in January. That’s seen the movie theater chain surpass GameStop in market capitalization while, somehow, its stock price continues to rise.

The earnings report comes as Chewy co-founder Ryan Cohen is elected as GameStop chairman. He has pushed to accelerate the company’s overhaul toward e-commerce. Turning around GameStop’s business to e-commerce will be a challenge, given that the company has nearly 5,000 physical stores. But meaningful progress is being made as evidenced by a 175% surge in global e-commerce revenue, reaching $720 million in Q4. That total accounted for 34% of consolidated Q4 revenues, compared to just 12% in fiscal 2019. Notably, 2020 e-commerce revenue surged 191% compared to 2019.

Meanwhile, top C-suite executives, including the CEO, are leaving or have already left, and the board has seen a revamp too. Current CEO George Sherman plans to step down on July 31, but the company has not named a successor.

How has the stock performed this year?

Driven by the momentum in meme stocks, shares of GameStop have risen 60% higher over the past thirty days. Shares have skyrocketed 1270% year to date and are up 1500% in the past six months. But investors want to know whether the company has a working business model beyond the social media-driven stock mania. Shares rose 4.7% to 314.18 on the stock market today.

Should you buy GameStop stock?

The current consensus among 4 polled investment analysts is to hold stock in GameStop Corp. This rating has held steady since June when it was unchanged from a hold rating. The 4 analysts offering 12-month price forecasts for GameStop Corp have a median target of 32.00, with a high estimate of 175.00 and a low estimate of 10.00. The median estimate represents a -89.83% decrease from the last price of 314.63, according to CNN Business.

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