Usually, when analysts look at the quarterly expectations before an earnings announcement, it’s time to do the math. For a retailer, numbers like in-store comps, eCommerce revenue, product momentum and seasonality are a big deal. When GameStop reports its quarterly earnings on Tuesday (March 23), all that normal stuff goes out the window.
What we have here is a specialty retailer that reported $1 billion in net sales for Q3. By comparison, Macy’s logged $4 billion during the same time period. Yet we have a retailer whose market cap at the time of this writing was $13.6 billion. Macy’s, despite its 3x revenue rate, had a market cap of $5.6 billion.
No one knows what to make of GameStop, its earnings or its future prospects. It had an undeniably wild ride through the first month of 2020, finding itself at the center of an unexpected confluence of events and consequences that set Wall Street on fire for a few weeks and ended with last week’s Congressional hearings on retail investing sites like Robinhood, which enabled the great GameStop stock surge of early 2021.
Things have since settled down in terms of the buying frenzy. GameStop’s stock price fell off sharply in early February, though it has since regained a fair amount of its strength. On the eve of its next earnings announcement on Tuesday (March 23), the firm’s stock price sits at $190, well below its late January peak of $347, but also well above its Jan. 3 price of $17.21 a share.
However, what will happen when GameStop actually publicizes its latest earnings in the aftermath of the ruckus remains a point of avid speculation among the experts, shareholders, analysts and market enthusiasts. Some shareholders, according to Wall Street Journal reports, are walking into earnings with optimism. That optimism is fueled by the recent addition of Chewy CEO Ryan Cohen to the board to help guide GameStop toward its future as a tech firm. This, combined with the addition of a new CFO and expanded eCommerce hiring activity, will combine to keep GameStop’s stock price moving forward full-steam ahead, according to the optimists.
Cohen’s vision for GameStop hasn’t been officially detailed. However, back in late November of 2020, he went on the record as saying that the company (which he had not yet joined) should shift its focus away from physical stores in favor of the digital-first economy.
“Taking the right steps in 2020 and 2021 can enable GameStop to own a bigger share of the market when estimated industry sales explode to more than $200 billion per year in 2023,” he wrote to the GameStop board. “We contend the Company’s sales should be growing at least in line with the market – not going in the opposite direction. Significantly upgrading eCommerce can provide for greater revenue capture across larger gaming catalogs, digital content and community experiences, online trade-ins, streaming services and eSports.”
Now Cohen has his shot. But analysts like Wedbush Securities’ Michael Pachter aren’t nearly as optimistic with GameStop’s stock price sitting at right about $200. “There is not an institutional investor alive who is considering going long at $200” a share, Pachter wrote in a note last week. “This is not a dot-com that’s just starting up.”
Pachter isn’t wholly down on GameStop, also writing that the release of new consoles by Sony and Microsoft will be a boon for the company. He just believes that its price today is disconnected from market reality. For the full fiscal fourth quarter, Patcher forecasts sales of $2.3 billion, comparable sales up 4.8 percent year-over-year, and adjusted earnings of $1.38 a share. That prediction is roughly in line with other analysts, and would represent GameStop’s strongest quarterly revenue and profit in two years.
“The fourth quarter is generally their moneymaking quarter,” said Telsey Advisory Group Analyst Joe Feldman. However, he did note some points of concern, namely that the company previously disclosed that its sales fell 3.1 percent for the nine-week holiday period that ended Jan. 2.
According to Barron’s, BofA Global Research Analyst Curtis Nagle expects an underwhelming but profitable quarter. He noted the new hires as optimistic developments, but also cautioned that the company has been lacking in details on cost, timeline and impacts to earnings.
More than earnings, however, the big expectation out of GameStop’s earnings on Tuesday is that the firm’s leadership might finally offer some comment on the buying frenzy its stock set off earlier this year. The firm’s executives haven’t publicly addressed the subject as of yet — unlike AMC CEO Adam Aron, who noted that he “takes to heart” the interest of a legion of retail investors that elevated his firm’s stock price alongside GameStop’s earlier this year.
What GameStop will have to say on that subject, its technology-shifted future and how it actually performed in Q4 — and whether it was more in line with the hype of the last few months, or the falling consumer interest of the last few years — will be revealed when the first hard figures hit the wires on Tuesday.
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