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GameStop Stock: What to Expect Ahead of Earnings

On June 1, GameStop will report its Q1 earnings results. Shareholders expect its stock to be on the move.

GameStop  (GME) - Get GameStop Corporation Report will report its first-quarter (Q1) earnings results on June 1 amid a modest consensus from Wall Street.

In addition to the earnings report, GameStop investors are awaiting the company's annual shareholder meeting — where they will vote on a stock split. This will occur the day after the Q1 earnings.

Here's what investors need to know ahead of GameStop's earnings day.

Figure 1: GameStop Stock: What to Expect Ahead of Earnings

Figure 1: GameStop Stock: What to Expect Ahead of Earnings

(Read more from Wall Street Memes: Top 5 Most Anticipated Earnings This Week: CRM, GME, CHWY, CRWD, And LULU)

GameStop's Last Earnings Recap

Last quarter, the company's earnings were short of impressive, mainly in the top line. Revenues grew by a modest 6% year-over-year (YoY), which was still better than the consensus of 4%.

However, what was interesting was that sales last quarter were higher than in Q4 2019, months before the pandemic began. Positive sales numbers last quarter, according to GameStop management, were due to partnerships with gaming PC makers.

The number that left something to be desired was the sharp net loss reported by GameStop in Q4. The company reported gross margins of 16.8%, well below the 21.2% reported in the same period last year.

Non-GAAP EPS of -$1.86 (negative) fell way short of consensus profit (positive) of 84 cents per share. Most likely, supply-chain disruptions and inventory management issues were responsible for the margin decline. This will likely be repeated in Q1.

What to Expect From GameStop's Q1 Earnings?

The consensus among Wall Street expects GameStop to report a more severe loss this time around, as the market already anticipates an unimpressive quarter from a financial standpoint. The unfavorable macroeconomic outlook involving mainly high inflation and supply chain disruptions tends to hurt GameStop's margins and inventory positions.

Thus, GameStop will need to report a loss per share above $1.22 and revenues above $1.32 billion to beat market estimates. As usual, since Ryan Cohen became chair of the company, the company has not provided financial guidance for Q1.

GameStop's most recent earnings calls have been short on additional information. The company has opted not to open up questions and answers to the public.

However, despite all the mystery created by the company, shareholders are waiting for updates on the growth initiatives that GameStop has been working on — in particular, the company's involvement with crypto and NFTs.

Recently, on May 23, GameStop launched its crypto wallet. It will be possible for users to securely store, send, and use Ethereum, NFTs, and ERC20 tokens under the custody of GameStop's Ethereum wallet.

But shareholders are perhaps more excited about the launch of GameStop's NFT Marketplace platform, planned for late Q2. Any release date news and other updates may serve as leverage for GameStop shareholders' bullish sentiment toward the company’s shares.

Do Earnings Really Matter for GME Shares?

The vast majority of GameStop's shareholders are retail investors. They probably bought GameStop shares intending to defeat short-sellers, rather than for the opportunity of the company's fundamentals. Thus, GameStop's last earnings report has been seen as "business as usual." Most likely, Q1 will be no different.

Here's how that played out last quarter. Even though GameStop reported unimpressive earnings results from a financial standpoint, its stock rallied over 115% the following week after company chairman Ryan Cohen announced he would buy an additional 100,000 GME shares.

More recently, GameStop stock experienced a new moment of euphoria along with the brief indication of a broad market correction at the end of last week. GameStop stock has been up over 54% in the last five days of May. High liquidity, converging with factors favoring short squeezes, was probably the cause behind this latest rally.

Again, there's a major catalyst expected after the company's earnings. One day after GameStop's earnings day, on June 2, the company will host its annual shareholder meeting. One of the main items on the agenda will be the vote on the stock split in the form of a dividend. This is expected by many shareholders to be a boost in sentiment and a driver of a short-term rally.

So even though financial numbers don't mean much to GameStop shareholders, earnings day in the middle of GameStop's bullish momentum could be another determining factor for GameStop shares to continue their journey to the moon.

(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)