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GameStop to Release First Earnings Report Since Reddit-Fueled Stock Rally

All eyes are on how earnings will play out on the forerunner of meme stocks.
(Emil O)
(Emil O)
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GameStop will release earnings during its 5:00 p.m. ET conference call Tuesday, WSJ reports.

Why It Matters: This is the first peek inside GameStop’s financials after its front-and-center role in the r/WallStreetBets trading frenzy. Last month, a Reddit community “successfully encouraged hordes of people to buy shares of it and other heavily shorted public companies, sparking a congressional hearing and the development of at least two Hollywood productions.”

  • GameStop’s price of around $200 Friday is more than 10 times as much as it was at the start of the year.

Changed Plans: Independent of the madness, GameStop is plotting its own comeback story, adding Chewy co-founder Ryan Cohen to its board to help lead the turnaround.

  • However, “Wedbush Securities analyst Michael Pachter said it isn’t possible for GameStop’s results to reflect its roughly $14 billion valuation given the issues it is facing.”
  • Even though 2020 was a booming year for video games, the shift away from GameStop’s brick-and-mortar locations dealt a major blow to the company. It currently has 4,800 stores after closing hundreds last year.

The Expectations: “Analysts expect the retailer to post its strongest quarterly revenue and profit in two years, bolstered by a winter holiday shopping season that included the release of next-generation gaming consoles from Microsoft Corp. and Sony Corp. But some also say the company’s performance should reflect challenges created by the pandemic and long-term industry changes that it has failed to insulate itself against.”

  • GameStop is projected to post an $88 million profit, with more than $2.2 billion in revenue.

Justin Oh:

I don’t expect any upside figures from Gamestop on the financial front. Unless the millions of $GME investors felt the need to buy goods from their local Gamestops last quarter, we’ll probably see continued financial struggles because of the pandemic. 

The silver lining pieces of information that could help the stock are probably around cost cutting and the development of an ecommerce platform strategy. 

At this point, the stock trades at a price completely removed from its fundamentals, so it’s hard to predict what the market will or won’t like. But in the long-term, the downside risk of $GME is much larger than the upside one.

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