GameStop Stock Plunges After Earnings Fall Short of Expectations—Key Level to Watch

The Company's Q4 Software Sales Fell 31%

KEY TAKEAWAYS

• GameStop shares plunged in extended trading on Tuesday after the company disclosed fourth-quarter earnings that came in considerably below analysts' expectations amid an ongoing shift to digital downloads and softening consumer spending. 
• A 10-K filing revealed that the company has slashed jobs and exited several international markets in order to achieve sustained profitability.
• Investors should monitor how the GameStop share price responds to its 2023 low at $11.83 for clues about the stock's next move.

Shares in brick-and-mortar video game retailer and legacy meme stock GameStop Corp. (GME) fell more than 15% in extended trading Tuesday evening after the company disclosed quarterly earnings that fell considerably short of Wall Street’s expectations amid an ongoing shift to digital downloads and softening consumer spending.1

In the three-month period ending Feb. 3, the Grapevine, Texas-based company posted adjusted earnings of 22 cents per share, compared to analysts’ estimates of 30 cents a share. Revenue of $1.79 billion in the period fell from $2.23 billion a year earlier and missed the $2.05 billion consensus view. Breaking down the video game seller’s top line, hardware and accessories sales were $1.09 billion, representing a 12% year-over-year (YOY) decline, while software sales slumped 31% to $465 million.2

"An increasing mix of digital downloads is hurting physical retail, and there is simply no reason to go to the store if a consumer can just order a game and download it immediately," said Wedbush analyst Michael Pachter, according to Reuters. "Revenues are highly unlikely to rebound unless management figures out a way to drive store traffic," he added.3

Gamestop also slashed jobs over the last year amid increasing online competition and softening consumer spending. At the start of February, the company had approximately 8,000 full-time salaried and hourly associates and between 13,000 and 18,000 part-time hourly associates globally, according to its annual 10-K report filed Tuesday evening.4

This compares with around 11,000 full-time salaried and hourly employees and between 14,000 and 27,000 part-time hourly staff in 2023, per Reuters.3 In addition, the company has ceased operations in Ireland, Switzerland, and Austria as part of its goal to achieve sustained profitability.5

The GameStop share price has remained entrenched within a multi-year downtrend, pressured by a long-term trendline connecting several prominent countertrend swing highs. Amid the earnings-driven sell-off, investors should monitor how the stock’s price responds to the 2023 low at $11.83. A reversal at this level could mark the beginning of a potential double bottom pattern, while a failure to hold this important chart level could act as catalyst for further falls in the share price.

Gamestop shares fell 15.2% to $13.14 in after-hours trading. Through Tuesday's close, the stock had lost about a third of its value over the past 12 months.

Sourced from Investopedia