GameStop Q2 preview: Where next for GME stock?

Graphic of trading data chart
Josh Warner
By :  ,  Market Analyst

When will GameStop release Q2 earnings?

GameStop will report second quarter earnings after US markets close on Wednesday September 7. A conference call will be held on the same day at 1700 ET.

 

GameStop Q2 earnings consensus

Wall Street believes GameStop will report a 9.5% rise in revenue to $1.29 billion and that its net loss will more than double to $107.4 million from the $55.0 million loss booked the year before.

 

GameStop Q2 earnings preview

GameStop’s management and the horde of retail investors backing the company remain focused on the ambition to thrust the languishing bricks-and-mortar retailer into the digital age by taking the business online. The new board, led by chairman Ryan Cohen who has brought in a number of new execs from the likes of Amazon, has remained quiet about its strategy but is making up for years of underinvestment in technology, bolstering the supply chain and growing its inventory to widen choice for consumers, while venturing into new areas from Non-Fungible Tokens (NFTs) to cryptocurrencies. 

However, GameStop is still reliant on its old business built around its thousands of stores across the US, Canada, Australia and Europe until those new initiatives pay off. This has required management to take tough action, having closed hundreds of stores and cut jobs to create a leaner business and reduce operating costs – although it has been recently reported that it is hiking pay for more senior store staff as part of a plan that could cost somewhere between $45 million to $50 million.

Costs still outstrip sales and GameStop remains firmly in the red. The company has over $1 billion in cash and a tiny amount of debt on its books, but there are still questions as to how long that cash balance can last considering its operations burnt through around $300 million in the last quarter alone.

Wall Street believes it will burn through another $272.6 million in the second quarter. At this rate, GameStop could run out of cash by next year. Analysts at Wedbush warned last week that they are expecting the company to continue burning through cash for the rest of this year and possibly even longer.

‘GameStop's digital transformation efforts have missed the mark so far, leaving it to rely on a declining core business,’ Wedbush said.

Consensus figures from Bloomberg show Wall Street is convinced GameStop will still be burning through cash in 2023. The focus on cashflow will only grow as the need for fresh cash increases. Notably, markets believe it will burn through less in the second half of 2022 compared to the first, but it still looks like a tough task to turn the company into a self-sustaining machine before the current cash pile is exhausted.

Meanwhile, the gaming market is also softening this year, making it all the more difficult for GameStop. The biggest concern is a pullback in spending as consumers become more cost-conscious in the current environment. A number of video game companies missed expectations this quarter and the semiconductor industry has flagged a severe slowdown in demand for gaming hardware – which makes up over half of GameStop’s sales. With that in mind, Wall Street forecasts hardware sales will be down 1.2% in the second quarter but countered by a 10.7% rise in software sales and a 20% jump in collectibles.

GameStop’s quarterly updates tend to be short and sweet and largely stick to the numbers. That places the focus on the conference call – although management continue to refuse to take questions following their prepared remarks that usually concentrate on the slew of new initiatives it is pursuing. Its latest development has been the launch of its NFT marketplace back in July that allows users to buy, sell and trade NFTs. That compliments the GameStop Wallet that gives users the ability to store, send and receive digital assets. Investors will be keen to find out how the new marketplace has fared since being launched.

Notably, this will be the first set of earnings since Diana Saadeh-Jajeh was appointed as the company’s new chief financial officer in July, having been promoted from chief accounting officer to replace Michael Recupero. That followed on from Nir Patel taking over as chief operating officer in May.

 

Where next for GME stock?

GameStop shares have lost ground since completing its 4-for-1 stock split in July and the latest selloff has seen the stock lose over one-third in value in less than three weeks.

Notably, the RSI is on the cusp of entering oversold territory, suggesting the stock could find some support around the current $27 mark. The fact the 50-day moving average has recently returned above the 200-day for the first time in 2022 is another bullish sign. If it can find reverse and climb higher then it will first look to recoup all three moving averages before targeting $36. From there, $40 can come into the crosshairs and then $42.

GameStop stock has lost over one-third in value in less than three weeks

However, the stock could continue to drift toward $22.50 if the pressure persists, a level that must hold to avoid bringing the 2022-low of $19.40 into play. Notably, the weekly chart shows the stock has continued to form a series of lower highs ever since peaking back at the start of 2021.

GameStop stock has set a series of lower highs since peaking in 2021

The four brokers that cover GameStop believe there is much more downside potential over the next 12 months with an average target price of $7.50 – levels not seen since before the original trading frenzy back in early 2021.

 

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