GameStop (GME), which reported its second positive quarter in 12 quarters, defied all expectations. Although expectations were low, GME stock is often the subject of unusual attention because it was the first retailer to report positive earnings in the retail trading phenomenon known as meme stocks. GME stock surged Tuesday before the results.
GameStop reported losses in every quarter except one, despite declining sales of physical video games. GameStop's results were announced Tuesday. The losses narrowed to 31 cents per shares in Q3 in the most recent period. The holiday season has been the best quarter for videogame retailers in history. However, GameStop's console and accessories sales as well as video game sales suffered in 2022.
Average hardware and accessory sales saw a 4.3% drop in the first three quarters GameStop's fiscal year 2022. As players switch to digital downloads, software and video games sales saw a roughly 6% decline.
There wasn't any major console release this year, like the PlayStation, Xbox, and Nintendo systems did in the past.
Barron's reported that Wedbush analyst Michael Pachter stated in a Thursday research note that "long-term headwinds" include possible liquidity problems and changing gamer preferences. He also noted that there are greater appetites for cloud, mobile, and subscription.
Pachter pointed out that Sony's PlayStation 5 saw strong holiday quarter sales, but that "a significant portion of those units were directly sold to consumers." Pachter pointed out that GameStop has not launched a non-fungible token market. However, GameStop's physical collectible sales such as Funko Pops! (FNKO), may have performed well for the quarter.
Pachter reiterated his underperform rating and set a $5.30 price target on GME stock. This was first announced by him in December after Q3 earnings. On Tuesday, shares traded at $17 above their January 2021 highs. This is an 86% drop.
He wrote that the shares were trading at levels that are not connected to the fundamentals of business because of irrational support by some retail investors.
GameStop beat all expectations for its Q4 results. The adjusted earnings jumped to 16 cents per shared, up from 47 cents last year. Net sales fell 1.2% to $2.226 million. Analysts had expected GameStop would report a 13-cent loss per share due to a 3.2% decline in revenue to $2.18 million.
GameStop's loss will be narrowed to 13 cents per shared for the third quarter. This compares to a 47-cent loss last fiscal year. Wall Street expects revenue to fall 3.2% to $2.18 Billion for the third consecutive quarter.
Sales of hardware and accessories increased by 4.5% to $1.24 Billion. Software sales, which include new and pre-owned video games software, declined 9.5% to $1.82billion.
GME stock jumped more than 34.5%, to 23.75 on Tuesday after the results. GameStop shares gained 5.5% in the trading period leading up to earnings. GME stock has fallen 3.5% so far in this year.