GameStop shares fall 18% on lack of transformation detail, possible share sale

GameStop shares fall 18% on lack of transformation detail, possible share sale

Investors finally got a look at GameStop‘s fundamentals following a Reddit-fueled trading frenzy earlier this year and were left wanting more from the video game retailer.

Here’s what the company announced after the bell Tuesday.

  • It released fiscal fourth-quarter results that missed Wall Street’s estimates on the top and bottom lines.
  • In its latest executive shake-up, the company named former Amazon and Google executive Jenna Owens as its new chief operating officer.
  • In a hint of the transformation that’s got some investors excited about the stock, the company said global e-commerce sales jumped 175% last quarter and accounted for more than a third of its sales in the period.
  • GameStop also acknowledged in a filing that it was considering selling additional equity shares to fund its transformation.
  • During a much anticipated earnings conference call that at one point reached maximum capacity, the company declined to answer questions.

Shares were down 18% in early trading Wednesday morning on the potential share sale and disappointment that a more detailed transformation wasn’t unveiled.

“The highly anticipated 4Q20 earnings report from GameStop was a bit anti-climatic,” wrote Telsey Advisory Group analyst Joseph Feldman. “While EPS met the consensus, it was completely driven by a tax benefit that offset much worse than expected operating profit. Moreover, while everyone was expecting big news about some massive digital transformation in the mold of the new tech-oriented board members, nothing was said.”

“In fact, the company did not even take questions on the earnings conference call,” added Feldman. “As for the much anticipated strategic plan, it sounded like every other retailer.”

For the fiscal period ended January 2021, GameStop earned $1.34 per share on revenue of $2.12 billion. Wall Street was expecting earnings per share of $1.35 on revenue of $2.21 billion, according to Refinitiv’s average of the six analysts.

GameStop’s fiscal fourth-quarter earnings typically make up the majority of the company’s yearly earnings, boosted by holiday sales. The company’s same-store sales rose 6.5% last quarter.

The company said it is continuing to suspend guidance, but is updating its fulfillment operations to boost the speed of its delivery and services. GameStop CEO George Sherman also revealed that February comparable store sales increased 23%, thanks to strength in hardware sales worldwide.

Along with the mania-fueled trading, GameStop’s stock has responded positively on new developments for the company in the past five months like the appointment of Chewy co-founder Ryan Cohen to GameStop’s board and a focus on GameStop’s technology and e-commerce transition.

GameStop said after the bell that it continues to seek out executive talent with e-commerce, retail and technology expertise to bolster its turnaround. Sherman said on the conference call that GameStop was “focused on transforming into a customer-obsessed technology company that excites gamers.”

Earlier this month, GameStop announced it tapped Cohen to lead its shift to e-commerce. He is serving as chairman of a special committee formed by GameStop’s board to help its transformation. Board members Alan Attal, Chewy’s former top operations executive, and Kurt Wolf, chief investment officer of Hestia Capital Management, also serve on the committee.

Earlier this year, an epic short squeeze in the company’s stock shocked Wall Street and drew attention to an emerging class of retail investor on social media platforms like Reddit. GameStop’s share price skyrocketed to $483 per share, and subsequently lost 90% of its value. The controversy drew the attention of Wall Street and Washington.

GameStop still has a market capitalization of nearly $13 billion through Tuesday’s close, 10 times the $1.3 billion market value the stock had at the end of last year. A year ago, GameStop’s market capitalization was $245 million.

Naming Owens as COO is the latest in a series of recent personnel moves, but it remains to be seen whether these moves and the sparse detail given Tuesday night will satisfy investors that have bid up the stock to such high levels.

Telsey’s Feldman lowered his price target on the shares to $30 from $33 following the results. The new target would represent a decline of more than 80% from Tuesday’s close.

— With reporting from CNBC’s Jesse Pound and Michael Bloom.