GameStop’s turnaround plan has proved ‘fruitless’ so far, says analyst


GameStop Corp. reported its seventh consecutive quarterly loss after the market closed on Wednesday and highlighted its goal of returning to profitability in the near term, but analysts warn there are plenty of challenges ahead.

“Throughout 2021 and 2022, we were extremely focused on repairing our decayed foundations,” said GameStop

CEO Matt Furlong on a conference call late Wednesday. Furlong also described headcount reductions in the second half of 2022 and said that GameStop is a stronger business than at any time in the recent past.

While shares rallied more than 6% shortly after Thursday’s open, analysts weren’t convinced that the company’s efforts to reshape itself have delivered results.

“GameStop’s turnaround plan has proven fruitless so far, as reflected by the announcement of reductions to the company’s corporate headcount in the back half of this calendar year,” Wedbush analyst Michael Pachter wrote in a note released on Thursday. “Short-term headwinds include poor results for its NFT [non-fungible token] marketplace, a contraction of the broader NFT space, ongoing hardware constraints, and cash burn.”

Now read: GameStop reports worse-than-expected quarterly loss, revenue decline 

GameStop entered the NFT marketplace earlier this year when it forged a partnership with Immutable X Pty Ltd. to create a fund of up to $100 million in Immutable X’s IMX tokens.

See also: NFT sales volume at a record low after 20% drop in November

The videogame retailer also faces long-term headwinds that include liquidity challenges and an industry-wide shift toward digital downloads, according to Pachter.

Set against this backdrop, he lowered his GameStop price target to $5.30 from $6. He has an underperform rating on shares of GameStop.

Other analysts have also noted the difficulties facing the company. “Revenue and earnings shortfalls in [the third quarter] reflect, in our view, ongoing challenges to the GameStop retail model and limited progress on new initiatives, although we note limited console hardware supplies and fewer hit video game releases,” Baird analyst Colin Sebastian wrote in a note released on Thursday. “Notably, there was no mention in the release (or on the conference call) regarding the company’s much-publicized NFT marketplace initiative, nor is the company sharing specific data on the e-commerce transition.”

Related: GameStop enters NFT marketplace with Immutable X partnership

Baird also expects to see more store closures and headcount reductions from the company. “GameStop’s increasing focus on operating efficiency makes sense given secular headwinds and limited progress that we can tell on key strategic initiatives,” Sebastian wrote.

However, the company may benefit from improving supplies for all major consoles during the holiday period and into next year, according to the analyst. On a seasonal basis, it could also be helped by an increase in new game launches.

GameStop, like its fellow meme stock AMC Entertainment Holdings Inc.
 was a major beneficiary of the meme-stock buying frenzy in January 2021, which sent the struggling company’s shares skyrocketing to dizzying heights. Between January and March 2021, GameStop’s stock price rose more than 1,200% and the company’s market cap surpassed $17 billion.

GameStop’s stock has fallen 40% this year, outpacing the S&P 500’s

decline of 17.5%. The company’s market cap is now around $7.1 billion.

Also read: GameStop stock soared, then fell all the way back down, in biggest price reversal since May. But why?

Independent equity-research firm New Constructs added GameStop to its list of “zombie” stocks in August and has highlighted the company’s cash burn as an issue.

GameStop ended its most recent quarter with $1.042 billion in cash, cash equivalents and marketable securities. GameStop’s long-term debt remains limited to a low-interest, unsecured term loan associated with the French government’s response to COVID-19, the company said.

Of three analysts surveyed by FactSet, one has a hold rating and two have a sell rating for GameStop.

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