GameStop’s (GME) latest quarterly report was a mixed bag, showing outperformance on the top-line yet disappointing on the profitability profile.
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In Q1, revenue hit $1.38 billion, amounting to a 7.8% year-over-year uptick while coming in ahead of the consensus estimate for $1.34 billion. However, adj. EPS of -$2.08 fell some way short of the loss of $1.45 a share Wall Street expected.
With management still not receptive to any questions regarding the details, Baird analyst Colin Sebastian says it is hard to know what lies behind the actual results. The 5-star analyst, though, has an idea for what went on during the quarter.
“We assume Nintendo products (hardware and software) and collectibles were key positives, and that console hardware supplies improved a little,” Sebastian opined. “But software sales continue to migrate online, gross margins are shifting lower, and SG&A creeping higher as the company invests in e-commerce, new product categories, and lays the foundation for digital asset transactions (arguably the largest piece of expectations embedded in the market cap).”
That last part refers to the opportunity the company is seeking in the “speculative areas” around “Web3” – blockchain, crypto and particularly NFTs.
The quarter saw the launch of the Chrome browser digital wallet – intended for the storage of digital assets – and over the next few weeks, GameStop expects to launch its NFT marketplace.
There’s no doubt, says Sebastian, GameStop is in the midst of a transformation, aware of where the puck is going and “reformulating its retail strategy to reflect the realities of the digital age.”
However, with its status as the Meme stock king, the volatility “tied more closely to non-fundamental trading, social media influences and other factors.”
Therefore, until the company “more clearly articulates new management’s business strategy,” which will enable investors to better evaluate the company’s “intrinsic value and prospects for future free cash flow generation,” Sebastian has taken his rating and price target off the table. (To watch Sebastian’s track record, click here)
In fact, only two analysts have dared take on the task of assessing the video game retailer’s prospects. Based on 1 Sell and Hold, each, the analyst consensus is a Moderate Sell. The forecast is for ~48% downside in the year ahead, given the average price target stands at $70. (See GameStop stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
