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Thursday, October 6, 2022

GameStop Stock Keeps Breaking Its Earnings Season Curse

There was a time when it was risky to hold on to GameStop (GME -4.38%) during earnings season. Even during the most feverish moments of last year’s meme stock frenzy, shares of the video game retailer typically sold off on its first day of trading after announcing fresh quarterly results. We saw GameStop slide following 11 of 13 quarterly updates heading into this year, but in 2022 the stock has moved higher following all three of this calendar year’s financial updates. 

GameStop posted what was initially well-received results on Wednesday afternoon. The headline numbers weren’t great. Net sales of $1.136 billion for the fiscal second quarter were 4% below where it landed a year earlier. Analysts were holding out for a 7% increase. An uptick in collectibles wasn’t able to overcome the year-over-year dip in its larger software and video game hardware categories.

The other end of the income statement is equally uninspiring at first. GameStop posted a loss for the quarter, and that’s not a surprise. It’s the sixth quarter in a row of red ink. It’s not pretty when its highest-margin business — software — experiences the largest segment decline. However, the ultimate $0.36-per-share deficit is actually better than what Wall Street pros were targeting. It’s the first time in more than a year that GameStop’s bottom-line results doesn’t fall short of analyst expectations. 

GameStop also announced a partnership with crypto trading exchange FTX US. The two companies will collaborate on e-commerce and online marketing initiatives, and GameStop will be also begin selling FTX gift cards at some of its stores. The top-line results were weak, but better news on the bottom line and buzz building for its partnership with a leading crypto platform found the shares up 12% in after-hours trading on Wednesday night. 

Image source: Getty Images.

Playing a new game

GameStop was an earnings season dud years before it became a meme stock darling. The losing streak of posting significant declines the day after new numbers, which now seems to be vanquished, went all the way back to the fall of 2018. 

  • Nov. 29, 2018: down 6.7%.
  • April 2, 2019: down 4.7%.
  • June 4, 2019: down 35.6%.
  • Sept. 10, 2019: down 9.8%.
  • Dec. 10, 2019: down 15.1%.
  • March 26, 2020: down 4.3%.
  • June 9, 2020: up 2.2%.
  • Sept. 9, 2020: down 15.2%.
  • Dec. 8, 2020: down 19.4%.
  • March 23, 2021: down 33.7%.
  • June 9, 2021: down 27.2%.
  • Sept. 8, 2021: up 0.2%.
  • Dec. 8, 2021: down 10.3%.
  • March 16, 2022: up 3.5%.
  • June 1, 2022: up 10.4%.

We’ll have to see how the stock closes on Thursday before confirming three quarters of gains. The volatility of GameStop stock is no joke. It’s still encouraging to see the market rally behind the retailer this year for a change, even if the stock it itself is down 35% this year. It’s a stark contrast to last year, when traders delivered double-digit percentage declines following three of the calendar year’s four quarterly reports but the stock soared nearly eightfold for all of 2021.

GameStop tends to march to the beat of a different drummer. We saw this happen earlier this summer after the retailer executed a 4-for-1 stock split. Stocks tend to move higher after making its share price more accessible for retailer investors, but things went the other way here. GameStop stock tumbled for three consecutive days following its stock split. 

The report was far from perfect, but the market seems to initially like it. It’s a welcome sight for the meme stock. The shares are moving higher on actual news reports and development instead of hype. Naturally sales will need to turn positive again, but right now GameStop is playing this game to win.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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