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GameStop Earnings Preview: NFT Marketplace, Cash Burn Rate In Focus For Meme Stock Favorite

GameStop is betting big on its digital asset strategy as traditional gaming sales slow, but its cash burn rate is raising analysts' concern.

Updated at 10:35 am EST

GameStop  (GME) - Get Free Report shares moved lower Wednesday ahead of the video game retailer's, and meme-stock favorite's, second quarter earnings after the closing bell.

Analysts expect GameStop to be firmly in the red for the sixth consecutive quarter, with a bottom line loss of 38 cents per share for the three months ending in July. Group revenues, however, are expected to rise 7.3% from last year to $1.266 billion.

GameStop, which is hoping to transition from a reliance on brick-and-mortar sales to a larger and more dynamic presence online, has slashed its headcount in order to minimize the cash burn required to build-out its non-fungible tokens, or NFT marketplace following a tie-up earlier this year with Australian blockchain startup ImmutableX.

It also fired its CFO, Michael Recupero, and unveiled a four-for-one stock split in early July.

New Constructs analyst David Trainer estimates GameStop has burned through around $263 million in free cash flow over the twelve months that ended in April, GameStop's fiscal first quarter, a rate that could only last for another 18 months if continued at a similar pace.

The group is hoping its GameStop Wallet, which allows users to store, send, receive and use both NFTs and cryptocurrencies across decentralized apps, will form the lynchpin of its digital asset strategy. 

"We firmly believe that digital assets are core to the future of gaming," CEO Matt Furlong told investors in June. "With regard to new offerings geared to the future of gaming, our blockchain team continued to drive progress when it comes to advancing new products, deepening partnerships, and establishing GameStop's presence in digital asset communities."

GameStop shares were marked 5.1% lower in early Wednesday trading to change hands at $23.81 each. 

The stock has fallen more than 40%, however, since August 16, when Chairman Ryan Cohen revealed plans to dump his entire stake in another meme stock -- Bed, Bath & Beyond  (BYND) - Get Free Report -- after only five months as an investor.

Cohen's sale of 9.45 million shares netted him a profit of around $60 million, but sparked a backlash among some retailer traders who felt the billionaire activist investor had used their buying momentum to make a quick turnaround trade. 

Cohen still holds a 12% stake in GameStop, according to Securities and Exchange Commission filings.

Possibly as a result of Cohen's Bed, Bath & Beyond sale, short interest in GameStop has expanded into Wednesday's earnings, however, with data from S3 Partners showing just over $1.66 billion in bets against the group, a figure that represents around 152.7 million shares, or 20.6% of the stock's outstanding float.