Can GameStop Stock Turn Things Around?

The video game retailer released third quarter earnings on Tuesday. GameStop (NYSE:GME) has been undergoing a major overhaul, as it attempts to expand beyond the traditional video game sales the company was built on. Part of that effort has involved massive cost reductions, including the closure of some 590 stores in 2024 and a “significant number of additional stores in fiscal 2025,” according to the recent 10Q filing. The results have been mixed. In the fiscal third quarter, GameStop reported net sales of $820 million, which was 5% lower than the same quarter a year ago and missed estimates of $893 million. Net income, however, rose some 343% to $77.1 million, or 13 cents per share. The earnings spike is mostly due to the cost-reduction efforts. The store closures have resulted in lower overhead as well as staff reductions which brought down selling, general, and administrative expenses by around $60 million, or 21%, to $221 million. On an adjusted basis, excluding impairment, unrealized loss on digital assets, and other items, adjusted net income was $139.3 million, up from $26.2 million in the same quarter a year ago. Adjusted earnings were 24 cents per share, which beat consensus estimates of 20 cents per share. Collectibles sales surge, but video game sales decline The big challenge for GameStop will be finding a way to generate revenue and maintain earnings in an environment where more consumers are opting for digital downloads from their consoles over hard copy games. GameStop has three major revenue streams – hardware and accessories, which is consoles, controllers, headsets, and other types of gamer gear; software, which is new and used video games, along with subscription cards and digital download codes; and collectibles. Of the three, collectibles are the most successful. In Q3, collectibles revenue grew 50% to $256 million – making it the second-best revenue stream. Collectibles refer to toys, games, apparel, gadgets, and other pop culture or technology products. Hardware sales were down 12% to $367 million in Q3 while software sales dropped 27% to $198 million. The pivot GameStop is trying to make is to become a leading ecommerce platform for all things gaming, focusing on its subscriptions and digital download codes, as well as the growing, high-margin collectibles business. It has also added Bitcoin as a treasury reserve asset and owns about 4,710 Bitcoin worth roughly $519 million. The idea is to position it as a stock that might appeal to crypto investors and improve its balance sheet, counting on Bitcoin growth. Investors were disappointed in the third quarter results, as the stock dropped about 6% to $21.60 per share. It is now down 31% YTD. It is not quite a value play either, with a P/E ratio of 29. The turn around will take time and while profits have improved from cost cutting, it remains an open question if GameStop can make the successful transformation.

About the author: Dave Kovaleski

Tell us something about yourself.