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GameStop Stock: 3 Key Takeaways From Q2 2021 Earnings

On September 8, despite GameStop reporting a revenue beat, the company missed consensus EPS and the stock dipped sharply in after-hours trading. Here are the key takeaways from Q2.

Gaming retailer GameStop  (GME) - Get GameStop Corp. Class A Report failed to impress investors this time. Despite beating Wall Street’s revenue consensus, the company missed expected EPS and the stock drop more than 7% by the end of the very brief earnings call.

Figure 1: GME stock chart on September 9 pre-market.

Figure 1: GME stock chart on September 9 pre-market.

Below, Wall Street Memes lists the 3 key takeaways from GameStop’s earnings day.

#1. P&L performance was decent

The company delivered a solid revenue beat, as sales grew 25% year-over-year. The EPS miss was also noticeable, at 9 cents. But worth noting, gross margin of 27.1% topped consensus by 50 basis points, which is good news.

The segment breakdown was not much of a surprise:

  • Collectibles continued to grow the fastest, by 56%. However, this is GameStop's smallest business, and the growth pace has decelerated from last quarter.
  • Hardware, representing over half of the retailer's total revenues, grew 38%. This is in line with Q1. The console refresh cycle continues to power GameStop's top-line results.
  • Software climbed only a meager 3%, although comps were probably tougher in this case.
Figure 2: GameStop's sales mix.

Figure 2: GameStop's sales mix.

Adjusted SG&A climbed only 11% YOY, suggesting operating leverage on revenues that grew 25%. Add this to gross margin that landed north of consensus, and GameStop's P&L did not look too bad vs. expectations.

Lastly, GameStop unveiled the lease of a new fulfillment center in Reno, Nevada. This should not have caught investors by surprise, but the announcement served to reinforce the retailer's e-commerce ambitions.

#2. Balance sheet looking even better

GameStop reported massive quantities of cash on the balance sheet: $1.8 billion vs. just less of $800 million last quarter. Meanwhile, debt levels remained very small.

Looking at other key items, share count increased to nearly 73 million vs. 65 million in Q2 of last year. This is in part a reflection of $1.1 billion cash that GameStop raised through stock issuance in Q2 of this year.

This is where opinions might diverge, but I think that raising cash is smart at a share price of nearly $200. Considering that cash from operations was negative in Q2, at nearly $12 million, it does not hurt to beef up the balance sheet ahead of what investors and the management team expect to be a turnaround period in 2021 and 2022.

#3. Lack of guidance pressures the stock

GameStop did not mention any guidance once again. Lack of outlook, i.e. a "vision", under new management seems to have pushed shares lower.

Also, very little was shared during the eight-minute-long earnings call – not even a bit of color on what investors should expect going forward. This may explain why GME stock displayed weakness in after-hours trading, despite what I consider to be decent (albeit not outstanding) results.

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What did you think of GameStop’s Q2 earnings results?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)