GameStop Q2 earnings preview: Where next for GME stock?

Key takeaways

• GameStop remains in the red and is struggling to grow
• First report since big shake-up to the board after activist investor Ryan Cohen became executive chairman in June, in wake of CEO Matt Furlong being fired.
• Management will not be holding a conference call for a second consecutive quarter
• GameStop has underperformed the wider market in 2023, but has just celebrated its best performance in six weeks.

 

GameStop earnings date

GameStop is scheduled to release second quarter earnings after US markets close on Wednesday September 6. Importantly, GameStop’s management has not been holding conference calls and will not be hosting one this week.

 

GameStop Q2 earnings consensus

GameStop is forecast to report a 0.5% rise in revenue to $1.141 billion, while its net loss is predicted to come in at $49.4 million, which would be less than half the $108.7 million loss we saw last year. 

 

GameStop Q2 earnings preview

GameStopis still facing a big task. The video game retailer has been making losses for over three years now and is trying to escape the red, although markets don’t believe it will enter the black anytime soon.

That challenge is all the more difficult without growth. GameStop has seen sales decline over the past year and is expected to report just a 0.5% year-on-year rise in revenue in the second quarter.

Wedbush, which thinks GameStop is still hugely overvalued with the stock currently trading over 66% higher than its price target of $6.20, said last week that industry trends suggest GameStop could deliver a sales beat but simultaneously warned that “several factors may have weighed on revenue”.

Demand for hardware remains the main problem. Many gamers upgraded to the latest consoles whilst stuck at home during the pandemic and the entire industry is increasingly shifting to a digital world less reliant on consoles. Sales of collectibles are also set to fall for the second consecutive quarter. The bright spot is software as demand for games remains more resilient.

“We suspect that results will be ‘fine’, with several long-term headwinds remaining,” said Wedbush analysts Michael Patcher and Nick McKay, which warned that a “continuing digital mix shift likely impacted GameStop traffic”. They also warned that GameStop may have lost market share in recent quarters.

GameStop may still be loss-making but it is on the right path. Its net loss is predicted to come in at $49.4 million, which would be less than half the loss we saw last year. That is down to a sharper focus on costs and much lower spending. GameStop is currently spending less than $10 million in capex each quarter, but is still burning through cash and eating into its cash position, which stood at $1.3 billion at the end of April. Still, that provides a healthy balance to keep GameStop going.

Notably, this will be the first set of results since there was a shake-up to the board. Ryan Cohen, the largest shareholder of GameStop, became executive chairman back in June after CEO Matt Furlong was let go. Meanwhile, Daniel Moore was appointed as its principal accounting officer and interim principal financial officer after Diana Saadeh-Jajeh resigned almost a month ago.

 

Where next for GME stock?

GameStop shares have underperformed this year, but the stock has just celebrated its best weekly performance after six consecutive weeks of declines.

That has seen it rebound since hitting 5-month lows in August. We can see that buyers have reliably re-entered the market when the share price has sank below $16.40, although we have seen it hit as low as $15.40 before recovering in 2023. Investors will hope this will provide a zone of support for the stock, especially as the next level of support is much lower beyond here.

On the upside, we can see that there was a strong rejection last Thursday and Friday at $18.60, suggesting this is the immediate barrier. We also saw it touch the falling trendline one again to show that it may be difficult to move above here. If it does, we could see it climb toward the moving averages that have converged around $21 to $22 if its results can provide a catalyst. We can see $27 has been the ceiling for the stock throughout the entirety of 2023, making this the ultimate upside target in the near-future.