GameStop Readies First Earnings Report After Reddit Traders Fueled 5,000% Surge–Here's What To Expect

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Topline

All eyes are on Grapevine, Texas-based GameStop, the top meme stock pushed to stratospheric highs by bullish Reddit traders, as it reports its first quarterly earnings Tuesday afternoon since its near 2,000% surge in January. Here’s what to expect.

Key Facts

Analysts are expecting the long-struggling brick-and-mortar gameseller will post fourth-quarter revenue of about $2.2 billion after the market closes, in line with revenue in the same period one year prior.

Adjusted earnings, on the other hand, are expected to tick up about 6% to $88 million, or $1.35 per share, compared to $1.27 per share one year ago.

Early Tuesday morning, GameStop announced chief customer officer Frank Hamlin will resign on March 31 after less than two years in the role, adding on to a slew of executive departures since billionaire activist investor Ryan Cohen, the cofounder and former CEO of booming pets supply 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.”

As of 12 p.m. EDT, GameStop shares are down 3.5% Tuesday, but still up a staggering 4,800% over the past year.

Crucial Quote 

“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.”

Key Background

The unlikely surge behind Texas-based GameStop has continued with a vengeance (and volatility) since Reddit traders declared it their meme stock of choice 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 beginning of last year. That started 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, ushering in bullish Reddit traders expecting the turnaround. Tuesday’s report will give a first–and early–glimpse into how that’s shaking out. 

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)