Gamestop plunges 15%, then rebounds. What’s next?

Posted: 18 March 2022 2:29 pm
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Shares plunged after hours after Gamestop reported earnings, then turned positive Friday morning. It’s another wild ride for investors, and the future still looks uncertain.

Shares of Gamestop (GME) plummeted by as much as 15% Thursday in extended trading after the company reported fourth-quarter earnings that fell well short of the Street’s consensus estimates.
Gamestop stock closed Thursday at $87.70 but plunged by as much as 15% to $75.51 in after-hours trading. Shares opened Friday at $85.10 and quickly recovered the previous day’s losses. At the time of this writing, Gamestop stock was trading at $90.77, up 3% for the day.
It’s another wild ride for the meme stock favorite. Here are some things investors need to know.

Why Gamestop stock is so choppy this Friday

Gamestop reported an unexpected loss during the 2021 holiday quarter and failed to provide a financial outlook for the company, which seemingly rattled investors. The company’s plans for the future have been a hot topic since the 2021 meme stock frenzy pushed shares to a high of $483.
In the three months ending January 29, 2022, total revenue grew 6% year over year to $2.25 billion, but the company reported a net loss of $147.5 million, or $1.94 per share. That’s compared with a profit of $80.5 million, or $1.19 per share, a year earlier. Adjusted loss per share for the holiday quarter was $1.86.
The company declined to provide a financial outlook in its earnings call, which lasted just about 10 minutes. No questions from analysts were allowed.

Gamestop “still in the early stages of our transformation”

Gamestop has seen massive revenue declines over the past decade, as it struggled to adapt to the rapidly digitizing gaming industry.
“We have learned from the mistakes of the past decade when GameStop failed to adapt to the future of gaming,” said Gamestop CEO Matt Furlong during an earnings call Thursday. “It is important to stress that GameStop had become such a cyclical business and so capital-starved that we have had to rebuild it from within. We’ve also had to change the way we assess revenue opportunities by starting to embrace, rather than run from, the new frontiers of gaming.”
Gamestop brought in a new management team last year to shift the company away from its brick-and-mortar retail business to an e-commerce marketplace. But they haven’t provided much detail about the company’s future business model other than wanting to increase its digital sales.
The company’s long been losing money and shuttered well over 1,000 stores in just the last two years as shoppers shifted their habits online during the height of the coronavirus pandemic.
As a part of its second-quarter 2021 earnings release in September, the retailer said it is taking steps to evolve. It plans to grow from a video game retailer to a more general technology company “that connects customers with games, entertainment and a wide assortment of products,” including consumer electronics, collectibles and toys.
Gamestop has been working on a new project dedicated to non-fungible tokens (NFTs), which means it’s looking to dip its toes into the world of blockchain. The company began hiring a dedicated blockchain team in 2021 and entered into a partnership with Immutable X to drive the development of its NFT marketplace.
Gamestop said during Thursday’s earnings call that it expects to launch the marketplace by the end of the second quarter, which would be July 31, 2022.
“Although there is a lot more hard work and necessary execution in front of us, GameStop is a completely different company today than it was at the beginning of the fiscal year,” Furlong said on the call. “We are still in the early stages of our transformation.”

Thinking of buying Gamestop stock?

Shares of Gamestop plunged in after-hours trading Thursday on the unexpected holiday-quarter loss but shot higher Friday morning as investors digested the news. The volatility perfectly represents Gamestop stock over the past year.
For more information and a five-year chart of the stock’s performance, see our dedicated guide to Gamestop stock.
On Yahoo Finance Live on Friday morning, Steve Sosnick, Chief Strategist at Interactive Brokers, told Brian Sozzi and Julie Hyman that Gamestop’s current prices are still too high.
“I don’t see why this is a $90 stock,” Sosnick said. “It doesn’t make money. There’s no real plan for making money. Maybe if NFTs take off, there’s that hope.”
But Gamestop hasn’t been trading on fundamentals for at least the past year. Despite waning sales, an army of Redditors in a massive short squeeze last January drove the price sky-high. It’s now well off its top but still up 400% from before the squeeze.
“It’s not a normal investing situation,” Sosnick added. “There’s nothing normal about this. And so it’s going to do what it’s going to do.”
So what does this all mean for investors?
If you’re thinking of buying shares of Gamestop based on a realistic valuation, you may want to wait to see if it continues to drop. There are just too many uncertainties about its future as a company.
But, on the other hand, anyone shorting the stock will be looking over their shoulder constantly to see if supporters on Reddit are jumping back in.
In short, if you’re risk-averse, perhaps the sideline is the best place to watch this stock.
At the time of publication, Matt Miczulski did not own shares of any equity mentioned in this story.

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