It’s a little more than a year since GameStop exploded into international headlines, and its stock hit the roof, following the meme stock short squeeze in the US, yet investors may see the company as no less a high-risk bet now than then.
Shares in the New York-listed computer games retailer plunged nearly 8% in after-hours trading overnight after the company revealed that it had swung to a surprise fourth quarter loss and confirmed plans to launch a marketplace for non-fungible tokens, or NFTs.
The stock is currently changing hands at $81.35.
GameStop reported Q4 losses of $147.5 million ($1.86 per share) versus $80.3 million of net earnings a year ago as quarterly revenues rose just 6% to $2.25 billion, with soaring costs hitting the bottom line.
While the loss came as a shock, based on consensus forecasts of $0.85 of earnings, at this point profits are not expected to drive the narrative or the share price. GameStop is not profitable and will not be for the foreseeable future so it is worrying that investors don’t seem impressed by the company’s turnaround progress or direction.
DRINK OR DON’T DRINK THE COOL AID
The main recovery ambition is to ditch costly mall stores and become an internet etailer. On the face of it, this seems like a sensible enough plan given that consumer buying habits have, and are increasingly, going digital. Posting 18% revenue growth for the full year to 29 January 2022, to $6.01 billion, shows encouraging evolution along that path ins spite of the widening loss to $331 million.
Where doubt exists is GameStop’s dabbling in emerging and unproven markets, like NFTs, cryptocurrencies and Metaverse opportunities. These are buzz words among many investors but most remain highly sceptical that real value will be created.
Believers in this long game may be happy to continue to sit on their stake in GameStop. Even more so if they had piled in with the thousands who chased the short squeeze early in 2021.
But GameStop stock is now 75% off $325 peaks of 29 January 2021, and the future for the company and share price doesn’t appear any clearer to many observers.
