GameStop will be reporting earnings from the most recent quarter today, we’re expecting a loss of $0.14 per share.
We all know what happened in 2021 with the short squeeze. In fact, there’s a new movie called Dumb Money that’s all about it. But this blog post isn’t about that. It’s about today’s earnings and whether or not calls (or puts) are a good idea. The company has been losing money for years and needs a bullish catalyst to help it turnaround.
Key Factors
GameStop in June fired its chief executive, Matthew Furlong, an Amazon veteran who had been appointed two years earlier. The company in June also said its board had elected activist investor Ryan Cohen, the co-founder of online pet-supplies retailer Chewy, as executive chair.
The press release announcing that move offered little detail. But GameStop, in a filing, said Cohen’s leadership would “further unlock long-term value creation for our stockholders.” The company said it appointed Mark Robinson as general manager and principal executive officer.
In July, GameStop said Chief Financial Officer Diana Saadeh-Jajeh would resign on Aug. 11. Daniel Moore, it said then, would become interim principal financial officer.
Cohen’s influence over GameStop has grown since 2020. Under his guidance, the company last year put a bigger focus on physical stores after stumbles in its e-commerce push.
“The videogame industry grew in [the second quarter], but a continuing digital mix shift likely impacted GameStop traffic,” Wedbush analyst Michael Pachter said in a research note not too long ago. Pachter, in this note, said that growth in hardware, or things like consoles, for companies like Nintendo and Sony, as well as a “compelling” lineup for new games and other software, indicated potential good news for GameStop’s results during the second quarter. But he pointed to “underwhelming” hardware sales from Microsoft and said GameStop “appears to have lost market share in recent quarters,” adding that its collectibles business — which includes items like toys and trading cards — faces difficult comparisons. He also noted the threat from a broader migration toward digital, mobile and subscription gaming.
“There were notable new game releases such as Activision’s Diablo IV and Nintendo’s The Legend of Zelda: Tears of the Kingdom, with the majority of sales likely occurring digitally,” Pachter said.
In Gamestop’s 2022 annual report, the company highlighted a plan to cut costs (especially in Europe), improve vendor relationships and penetrate higher margin markets like collectibles and toys.
Just as important as earnings is guidance, however the company has not provided this metric in recent quarters. Still, from my research I see that analysts believe that the company will report third-quarter revenue of $1.159 million — implying a YOY decline of 2.34% — and an adjusted EPS loss of 14 cents. For the full year of 2023, analysts expect $5.706 billion of revenue and an adjusted EPS loss of 26 cents.
This does suck for GME, unfortunately it’s not looking very good for share holders. However, the popularity in DRS shares is rising. Retail shareholders have enthusiastically adopted the practice of using the Direct Registration System (DRS). For those who don’t know, the DRS allows investors to hold their shares through the company’s transfer agent, Computershare. It eliminates the need to entrust shares to a broker or to possess a physical stock certificate, as was customary in the past.
By contrast, when individuals allow brokers to hold their shares, they’re kept under the brokerage’s “street name,” rather than the investor’s name. Brokers may then loan these shares to short sellers, who require access to the stock of the companies they are betting against.
GameStop’s DRS numbers are growing, last earning report, they revealed that 76.6 million shares were held by registered owners through Computershare. This indicates that around 25% of GameStop’s outstanding shares were in the transfer agent’s custody as of June 1. It also represents an increase of approximately 600,000 shares from the previous quarter. GameStop is likely among the companies with the most outstanding shares registered with its transfer agent. Since October 2021, GameStop’s management has considered this information “material” and has included it in the company’s quarterly filings. However, this isn’t indicative of a positive or negative earning report today. It just shows the “ape” mentality regarding the stock.
I’m gonna go ahead and grab puts for earnings. As of writing, GME 9/8 18p is only $0.90 a pop. But it’s important to note that this is not financial advice, and posts like these are meant for educational purposes only. It’s meant to show the types of information researchers like to gather before making a decision on an earning play.
