Gamestop
There was significant chatter on social media and WallStreetBets that the earnings dip was a buying opportunity. Of course, this is not unusual for Gamestop given that it seems totally disconnected from fundamentals and seems to follow social media sentiment. While no one knows how long this disconnect will last, at some point, reality and the fundamentals of the stock will matter.
Inside the Numbers
In Q2, Gamestop reported a net loss of $0.85 per share, while analysts were looking for a loss of $0.85 per share. Last year, the company lost $1.71 per share. Revenue beat expectations at $1.18 billion vs $1.12 billion and was a modest improvement from last year's $942 million.
Interestingly, the company didn't provide any guidance for the full year or upcoming quarters. It also opted not to take any questions from analysts during its conference call which is also unusual given that it was the first call for new CEO Matthew Furlong and CFO Mike Recupero who have been touted as having a new vision for the company.
Although the company did modestly top expectations for sales and revenue, it was nowhere close to being sufficient to justify the stock's rally and $15 billion valuations. Another item of concern is that the company disclosed a potential probe from the SEC about unusual trading activities in the stock.
The company also didn't give much insight into its transition to e-commerce. One of the reasons for the stock's rally was the ex-Chewy
One modest step is the company has secured a 530,000-square-foot fulfillment center in Reno, Nevada to increase its ability to process and fulfill orders. It's also building out a customer service center in Florida. However, there's still little clarity on how it will compete with the next generation of video game sales which are more streaming in nature and allow publishers to let users directly download games rather than buy physical products.
Stock Price Outlook
Gamestop could certainly climb higher in defiance of gravity and its fundamentals. However, it's a "greater fool" situation given the lack of fundamental improvement and continued losses. Further, the stock doesn't seem to have a strategy to gain a foothold in a world where video game sales go completely digital which seems likely over the next decade. Therefore, the stock should be avoided except by very short-term, technically-oriented traders.