GameStop Earnings Preview: NFT Marketplace, Cash Burn Rate in Focus
GameStop (GME) shares were down Wednesday ahead of the video game retailer and meme stock favorite’s second-quarter results after the closing bell.
Analysts expect GameStop to be firmly in the red for a sixth consecutive quarter, with a bottom-line loss of 38 cents per share for the three months ending in July. However, group revenue is expected to rise 7.3% from last year to $1.266 billion.
GameStop, which hopes to transition from relying on brick-and-mortar sales to a larger and more dynamic online presence, has cut staff to minimize the spending required to build out its non-fungible tokens, or NFT, marketplace after a tie-up earlier this year with Australian blockchain startup ImmutableX.
It also fired its chief financial officer, Michael Recupero, and unveiled a four-for-one stock split in early July.
New Constructs analyst David Trainer estimates that GameStop burned through about $263 million in free cash flow in the twelve months ending in April, GameStop’s fiscal first quarter, a rate that could only last another 18 months if it continues in a similar pace.
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The group hopes that its GameStop wallet, which allows users to store, send, receive and spend both NFTs and cryptocurrencies across decentralized apps, will form a key element of its digital asset strategy.
“We firmly believe that digital assets are at the heart of the future of gaming,” CEO Matt Furlong told investors in June. “In terms of new offerings aimed at the future of gaming, our blockchain team continued to drive progress in advancing new products, deepening partnerships and establishing GameStop’s presence in digital asset communities.”
GameStop shares were marked 0.88% lower in pre-market trading to indicate an opening price of $24.92 each.
However, the stock has fallen more than 40% since Aug. 16, when chairman Ryan Cohen revealed plans to dump his entire stake in another meme stock — Bed, Bath & Beyond (BIND) — after only five months as an investor.
Cohen’s sale of 9.45 million shares netted him a profit of about $60 million, but sparked a backlash among some traders who felt the billionaire activist investor had used the buying momentum to make a quick turnaround.
Cohen still has a 12% stake in GameStop, according to Securities and Exchange Commission filings.
Possibly as a result of Cohen’s Bed, Bath & Beyond sale, short interest in GameStop has extended into Wednesday’s earnings, but data from S3 Partners shows just over $1.66 billion in play against the group, a figure that represents about 152.7 million shares, or 20.6% of the share’s outstanding float.
