GameStop sales top estimates, losses narrow more than expected as company taps new executives

·Reporter
·4 min read

GameStop (GME) reported fiscal first-quarter results that reflected improved sales and narrowing losses, even as many investors continue to fixate on the company's "meme stock" clout over business performance. The company also announced two Amazon veterans would be joining the company as chief executive officer and chief financial officer.

Shares traded 5% lower during the after hours session before paring some losses.

Here were the main results from GameStop's report compared to consensus estimates compiled by Bloomberg: 

  • Q1 Revenue: $1.28 billion vs. $1.17 billion expected and $1.02 billion Y/Y 

  • Q1 Adjusted loss per share: 45 cents vs. 71 cents expected and $1.61 Y/Y 

GameStop, one of the original names to be pushed higher during a frenzy of retail investor activity earlier this year, has seen a renewed wave of interest online in recent weeks. Traders on platforms including Reddit's forum r/wallstreetbets have touted GameStop and other stocks like AMC Entertainment (AMC), BlackBerry (BB) and Bed Bath & Beyond (BBBY), which have each been the target of considerable short interest. In doing so, these users have helped stoke widespread purchases of these shares and catalyzed significant short squeezes, as those who bet against the stocks scrambled to cover their short positions. 

UKRAINE - 2021/02/05: In this photo illustration a GameStop logo is seen on a mobile phone screen in front of Reddit logo. (Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)
UKRAINE - 2021/02/05: In this photo illustration a GameStop logo is seen on a mobile phone screen in front of Reddit logo. (Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)

According to data from S3 Partners, short interest in GameStop totaled $3.04 billion as of Tuesday's close, with 10.86 million shares shorted for a 19% short percent of float (the percentage of a company’s stock that has been shorted by institutional traders). Short sellers in GameStop were down by $294 million last week. 

For many investors, company fundamentals have taken a back seat to the mass appeal of these stocks when making investment decisions. GameStop posted its fourth loss in the past five quarters in the three months ended in April, and the company said it was continuing to suspend guidance. 

Revenue, however, grew by a better-than-anticipated 25% to mark the first year-over-year increase in nearly three years. GameStop also added it sales in May were up 27%, extending advances and recovering further after the pandemic. Estimates for GameStop's first-quarter results were drawn from just three Wall Street firms, however, given that the majority of sell-side analysts dropped their coverage of GameStop's stock in recent months given its elevated volatility. 

And of the analysts that still cover GameStop, most have taken a bearish stance on the stock.

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"We rate GameStop underperform given our belief that multiple structural headwinds centered around digital disintermediation will continue to weigh on earnings and cash flow," Bank of America's Curtis Nagle wrote in a recent note. "GameStop currently has a significant cash position which we expect to be used to pay down debt and repurchase shares. However, with the risk that free cash turns negative over the next few years, earnings support from capital return will ultimately fade and likely be overwhelmed by persistently declining operating earnings." 

However, some have asserted that there is a fundamental argument to be made for investing in shares of companies like AMC and GameStop, with the consumer-facing, brick-and-mortar businesses benefiting from the same "reopening trade" rotation that has lifted airline, cruise line, leisure stocks and retailers. And GameStop has also recently overhauled its executive lineup and board, with Ryan Cohen, co-founder of e-commerce platform Chewy, voted in as GameStop’s new chair of the board earlier Wednesday morning. 

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And both GameStop and AMC have attempted to capitalize on their hefty retail investor base. The companies have issued millions of new shares over the last several months — with prominent disclaimers about potential volatility and losses for investors — as a means of raising additional funds to reinvest in the businesses. AMC recently took that strategy one step further, launching a new shareholder platform to engage directly with investors and offering them in-person perks like free popcorn at the company's theaters. 

Valuation has been a key concern for analysts covering GameStop, and a number have fully pulled coverage on the share amid the unprecedented retail investor interest. Of those that still cover the stock, two rated the stock as a Hold, while two rated the stocks as a Sell. 

GameStop shares have rallied more than 1,500% for the year-to-date.

This post is breaking. Check back for updates.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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