GameStop Shares Pop 48% On Surprise Q4 Profit, Prompting Frenzied Short Covering Rally
After the regular market close on March 21, GameStop Corp. (NYSE: GME) reported a surprise profit of US$0.16 per share for the holiday 4Q FY23 ended January 28, 2023. These results, which bested analysts’ consensus projections of a loss of US$0.13 per share, represented the company’s first profitable quarter in two years.
GameStop’s 4Q FY23 revenue dipped 1.2% year-over-year to US$2.23 billion, but that too was ahead of US$2.18 billion estimates.
GAMESTOP CORP. SELECT FINANCIAL DATA
| (in millions of US dollars, except for shares outstanding) | Full Year 2023 | 4Q FY23 | 3Q FY23 | 2Q FY23 | 1Q FY23 |
| Revenue | $5,927.2 | $2,226.4 | $1,186.4 | $1,136.0 | $1,378.4 |
| Adjusted EBITDA | ($187.7) | $82.5 | ($66.6) | ($78.1) | ($125.5) |
| Adjusted Operating Income | ($311.6) | $46.2 | ($95.0) | ($106.2) | ($153.7) |
| Adjusted Diluted EPS | ($1.03) | $0.16 | ($0.31) | ($0.35) | ($0.52) |
| Operating Cash Flow | $108.2 | $338.2 | $177.3 | ($103.4) | ($303.9) |
| Cash – Period End | $1,139.0 | $1,139.0 | $1,042.1 | $908.9 | $1,035.0 |
| Debt – Period End | $616.6 | $616.6 | $574.5 | $602.4 | $617.0 |
| Fully Diluted Shares Outstanding (Millions) | 304.2 | 304.2 | 304.2 | 304.0 | 303.6 |
The key drivers of the better holiday quarter results were collectibles sales, such as superhero toys, and cost reductions, including the effects of layoffs. Collectibles sales increased 21% in the quarter versus year-ago levels, US$313 million versus US$279 million; while core hardware and accessories (gaming platforms) and software sales in aggregate fell 3% year-over-year to US$1.913 billion versus US$1.974 billion.
GameStop’s quarterly sales in the holiday quarter noticeably trailed the 2% increase in the overall U.S. video game industry as measured by The NPG Group, an industry research firm. This was the second successive quarter that GameStop’s sales change underperformed the industry average.
GAMESTOP CORP. INDUSTRY COMPARISON
| Total Consumer Spending on Video Gaming in the U.S. | Video Gaming Industry Year-Over-Year % Change | GameStop Year-Over-Year % Change (in Revenue) | |
| 4Q 2022 | $18.1 billion | 2% | -1.2% |
| 3Q 2022 | $12.34 billion | -5% | -8.5% |
| 2Q 2022 | $12.35 billion | -13% | -4.0% |
| 1Q 2022 | $13.90 billion | -8% | 8.0% |
Source: NPD Group, GameStop
Nevertheless, GameStop’s shares exploded higher on this news in a short-covering frenzy. The stock reached about US$26 per share in after-hours trading on March 21, up about 50%. As of February 28, nearly 57 million of GameStop’s 304.2 million shares outstanding were sold short. About 21% of the stock’s float is shorted.
In its earnings release, GameStop made no mention of its cryptocurrency and non-fungible token (NFT) businesses, an initiative it announced with much fanfare in May 2022. In its 3Q FY23 10-Q, GameStop reported that “revenues earned from our digital asset wallet and NFT marketplace were not material to the condensed consolidated financial statements for the three and nine months ended October 29, 2022.”
Consistent with recent practice, GameStop took no questions on its earnings conference call and provided no forward guidance.
Despite the better-than-expected (albeit fairly low quality) 4Q FY23 EPS and the sharp increase in its after-hours trading price, GameStop shares look extremely expensive. At a share price of US$26, GameStop’s enterprise value is about US$7.4 billion. This giant valuation is hard to reconcile against stagnant (at best) revenue growth and full-year FY 2023 adjusted EBITDA and operating income of negative US$188 million and positive US$108 million, respectively.
GameStop Corp. last traded at US$17.65 on the NYSE.
Information for this briefing was found via Axios, LinkedIn, and the sources and companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
