Skip to main content

GameStop Stock: Why Earnings Should Be a Catalyst

GameStop is slated to announce fourth-quarter results this week. Here's why investors should expect GME's share price to rise.

GameStop's  (GME) - Get Free Report fourth-quarter earnings announcement is just around the corner. The video game retail company is slated to report on March 17 after the closing bell.

In the meantime, let's take a closer look at what to expect from GameStop shares.

Figure 1: GameStop Stock: Why Earnings Should Be a Catalyst

Figure 1: GameStop Stock: Why Earnings Should Be a Catalyst

(Read more from Wall Street Memes: SoFi Stock: 3 Reasons to Buy the Dip)

GameStop's Q3 Recap

GameStop did quite well in terms of revenue during its third quarter. It reported revenue of $1.3 billion. That's 30% higher than the third quarter of the prior year and much better than what the market had been expecting.

The company also managed to ramp up inventory by almost $300 million year-over-year, to $1.14 billion. GameStop was focusing on front-loading its inventory to meet increased customer demand and mitigate supply-chain issues.

Interestingly, GameStop Chair Ryan Cohen has suggested that his other big holding, Bed Bath & Beyond  (BBBY) - Get Free Report, do the same.

However, for the third quarter, GameStop reported an earnings miss of 87 cents per share and a loss per share of $1.39. Tax expenses could account for some of that large miss. GameStop incurred tax expenses, which are always difficult to anticipate, during the quarter. In the third quarter of last year, GameStop had booked a large tax benefit.

During its Q3 call, the company neglected to give guidance. However, CEO Matt Furlong mentioned that the top line (revenue growth) is GameStop's No. 1 focus.

GameStop's share price fell 5.5% after the company posted Q3 earnings. This is likely due to the fact that GameStop's management team didn't open up about future initiatives.

What to Expect for GameStop's Q4

To beat market expectations on earnings, GameStop will need to report earnings per share above 84 cents. This target is more than 37% lower than what the company reported for the same quarter last year.

Figure 2: GameStop's EPS surprise & estimates by quarter.

Figure 2: GameStop's EPS surprise & estimates by quarter.

To beat revenue expectations, GameStop will need to report numbers above $2.22 billion. This would be an increase of just over 4% from the same period last year.

The lack of clarity given by the company's management in the previous quarter has left things a bit foggy. The last earnings call felt like GameStop's management was just checking the boxes.

This practice is likely to continue. As Cohen recently said in his letter of advice to the Bed Bath & Beyond board, he doesn't believe in guidance. He disapproves of management teams spending time accommodating Wall Street when that time could be better spent focusing on customer experiences.

But during the fourth quarter, third-party news broke that GameStop is about to launch its NFT marketplace platform in partnership with Immutable X. This will allow users to trade in-game assets via blockchain tokens on an Ethereum platform.

This initiative could be a big step for GameStop toward modernizing and growing its business. Some updates from the company's management on the progress of the project could be super-bullish for GME stock.

Do Earnings Really Matter for GME Shares?

Most of GameStop's shareholders are retail investors. Most probably bought GameStop shares in order to beat short sellers, rather than focusing about the company's fundamentals.

But as we;ve seen in the last few months, GME has been a high volatility stock. In general, the broad market has influenced investor sentiment. So a surprise related to the company's fundamentals — such as news about the NFT marketplace — could excite investors and push shares higher.

If Q4 turns out to be “business as usual,” as the other recent quarters have been, we should expect its financial results not to have a huge impact on the stock.

Twitter Speaks

What do you think might be the biggest catalyst for GameStop shares during Q4 earnings?

(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)