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game stop

GameStop Flat After Reporting Mixed Quarter

Ticker Symbol: GME

The meme stock king GameStop’s shares are trading flat in the morning trading session after reporting high cash burn but strong sales growth in its first quarter earnings call for fiscal 2022.

The company, which has traditionally functioned as a video game retailer with almost 5,000 stores across the globe, has been undergoing a major shift in its strategic vision in recent years. New management has been transitioning the retailer away from the business of physical sales of games and towards crypto currencies and non-fungible tokens (NFTs).

The company reported an adjusted loss per share of $2.08 against an analyst estimated loss per share of $1.16, and the year ago loss of 45¢. Sales, however, grew 8% year over year to $1.38 billion, handily beating the expected $1.33 billion from Wall Street.

Hardware and accessories net sales were down 4.2% from the year ago period to $673.8 million, but software sales were up 22% to $483.7 million and collectibles sales surged 26% to $220.9 million.

The company primarily blamed higher freight costs and increased inventory for the miss on earnings, saying that gross margins shrank by 4.2% over the year ago period. The company also reported a negative cash flow of $236 million for the quarter.

Ryan Cohen, founder of the e-commerce pet food delivery company Chewy, who became Chairman of the board in 2021, has tried to push the retailer to pivot towards the burgeoning crypto field. The company launched a digital asset wallet in May and started selling IMX, an Ethereum token for the trading of NFTs, in February.

The company recorded $76.9 million in revenue from the sale of digital assets during the quarter. Furthermore, management plans to launch a new NFT marketplace during its fiscal second quarter, deepening its presence in the space.

The company has outlined plans to become an online marketplace for videogames and related products hoping they become a “super app” for gaming. GameStop plans to differentiate itself from other NFT trading hubs such as Coinbase, by catering its needs to gamers specifically.

Management has outlined plans to dominate the ecosystem where gamers can buy games, trade gaming related NFTs and other crypto assets all from one place. Currently, GameStop primarily sells games for console manufacturers such as Xbox, PlayStation, and Nintendo, instead of PC-native games. The firm would have to manage a transition towards PC gaming while simultaneously launching the crypto ecosystem to meet its value proposition.

This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.