GameStop stocks are down 18% in the absence of transformation details and stocks may be sold
After a trading frenzy fueled by Reddit earlier this year, investors finally got a glimpse into the basics of GameStop and wanted more from the video game retailer.
Here’s what the company announced after the bell on Tuesday.
- Fourth quarter results were released that were missing Wall Street estimates on the top and bottom lines.
- In its recent executive reorganization, the company named former managing director of Amazon and Google, Jenna Owens, as its new chief operating officer.
- In a note of transformation that got some investors excited about the stock, the company said global e-commerce sales rose 175% in the most recent quarter, accounting for more than a third of its sales over the reporting period.
- GameStop also confirmed in a filing that it is considering selling additional shares to fund its transformation.
- The company declined to answer questions during an eagerly anticipated conference call on the results, which at some point was reaching maximum capacity.
Shares fell 18% early Wednesday morning on the possible share sale and disappointment that a more detailed transformation was not disclosed.
“GameStop’s much-anticipated fourth quarter 20 results report was a bit anti-climatic,” wrote Joseph Feldman, analyst with Telsey Advisory Group. “While reaching consensus, EPS was driven entirely by a tax break that offset far worse than expected operating income. While everyone was expecting big news of a massive digital transformation in the form of the new tech-savvy board members, nothing was said. “
“In fact, the company didn’t even ask questions on the earnings conference call,” Feldman added. “The much anticipated strategic plan sounded like any other retailer.”
For the fiscal period ending January 2021, GameStop achieved $ 1.34 per share on revenue of $ 2.12 billion. Wall Street expected earnings per share of $ 1.35 on sales of $ 2.21 billion, according to the average of the six analysts at Refinitiv.
GameStop’s earnings in the fourth quarter of its fiscal year typically make up most of the company’s annual earnings, which is boosted by Christmas sales. The company’s sales in the same store rose 6.5% in the most recent quarter.
The company announced it will continue to suspend the guidelines, but is updating its fulfillment operations to increase the speed of its delivery and services. GameStop CEO George Sherman also announced that comparable store sales rose 23% in February thanks to strong global hardware sales.
Along with insane trading, GameStop stock has responded positively to new developments for the company over the past five months, such as the appointment of Chewy co-founder Ryan Cohen to GameStop’s board of directors and a focus on the technology and e-commerce transition by GameStop.
GameStop said after the bell that it will continue to seek executives with e-commerce, retail and technology expertise to support its turnaround. Sherman said on the conference call that GameStop “was designed to transform itself into a customer-obsessed tech company that gamers would love”.
Earlier this month, GameStop announced that Cohen had been won over to make the move to e-commerce. He chairs a special committee formed by the GameStop board to help transform it. Board members Alan Attal, Chewy’s former top operations manager, and Kurt Wolf, Hestia Capital Management’s chief investment officer, are also represented on the committee.
Earlier this year, an epic short squeeze in the company’s stock shocked Wall Street, drawing attention to a rising class of retail investors on social media platforms like Reddit. GameStop’s share price rose to $ 483 per share and then lost 90% of its value. The controversy drew the attention of Wall Street and Washington.
GameStop still has a market cap of nearly $ 13 billion as of Tuesday’s close of trading, 10 times the market value of $ 1.3 billion the stock was worth at the end of last year. A year ago, GameStop’s market cap was $ 245 million.
Naming Owens as COO is the latest in a string of recent staff moves, but it remains to be seen whether those moves and Tuesday night’s sparse details will satisfy investors who have taken the stock to such high levels.
Telseys Feldman cut his target price on the stock after the results from $ 33 to $ 30. The new target would represent a decline of more than 80% from Tuesday’s close.
– With reports from Jesse Pound and Michael Bloom of CNBC.