Dive Brief:
- GameStop expects to post a net loss of $27 million to $37 million, the company said in preliminary Q1 results on Friday. That’s compared to a $50.5 million loss in the year-ago period. The video game retailer’s Q1 net sales are expected to range from $872 million to $892 million, down from $1.24 billion a year ago.
- The company’s selling, general and administrative expenses will range from $290 million to $300 million, compared to $345.7 million last year. GameStop expects to report cash in a range of $1.07 billion to $1.09 billion, down from $1.31 billion a year ago.
- Also Friday, GameStop filed with the U.S. Securities and Exchange Commission to sell up to 45 million shares of its common stock. The company has tapped Jefferies as its sales agent.
Dive Insight:
GameStop’s preliminary Q1 results were below Wall Street expectations, Wedbush analysts Michael Pachter and Nick McKay said in a Friday note. Wedbush had estimated net sales of $1 billion, while Wall Street’s estimates were slightly higher. Wedbush’s analysts said the continuing trend away from console-based games and a lack of new game releases are factors influencing GameStop’s performance.
“We expect hardware sales to decline further this year as Sony issued PS5 unit guidance at 18 million for FY 24 after having reported unit sell-in of 20.8 million in FY 23, far below its initial estimate of 25 million,” Pachter and McKay said.
Additionally, a much later-than-expected release for Grand Theft Auto VI and reports that the next version of Call of Duty will go straight to XBox’s Game Pass subscription service will likely further the sales decline of physical copies of gaming software, Wedbush said.
Alongside GameStop’s main retail offerings of gaming hardware, software and collectibles, the company previously had a digital asset wallet and was in the NFT market. It exited those sectors at the end of 2023.
The company did not announce the date it expects to officially report Q1 results.
Wedbush’s analysts said they view GameStop’s share issuance positively. The move allows the company to take advantage of a recent share price spike by issuing them at a premium. This move should provide “a greater level of reserves while it struggles to re-focus its business and reverse continuing operating losses,” Pachter and McKay said.
Many analysts dubbed GameStop a meme stock after social media-driven speculative interest in 2021 caused the company’s stock price and trading volume to quickly and sharply change from its actual market value. The company acknowledged the volatility in its SEC filings, noting that from January 2021 through today its stock price “has seen extreme price fluctuations that do not appear to be based on the underlying fundamentals of our business or results of operations.”
Ragini Bhalla, Creditsafe’s head of brand and spokesperson, said this month that GameStop has low debt and plenty of cash. “One way it has managed to keep its debt under control is by using the cash it gained during the early 2021 meme-stock event to pay off its formerly large debt load,” Bhalla said in emailed comments.
Despite the fundraising opportunity, “we do not believe GameStop can ‘save its way to prosperity,’ and expect the mix of software sales to continue to shift to digital and away from physical,” Pachter and McKay said. “While there will likely be a new Nintendo console next year and an overall lift in software sales from [Grand Theft Auto VI], we think GameStop will see continuing sales declines next year as well.”
