Proactive Investors - GameStop Corp (NYSE:GME) delivered “more of the same” with no earnings call or strategic update to go along with its quarterly results for the second quarter in a row, according to analysts at Jefferies.
The video game retailer reported better-than-expected revenue and earnings after the closing bell on Wednesday.
“This quarter was the first under Mark Robison, the 5th new leader in as many years and a partial quarter with new interim CFO, Daniel Moore, (4th in 5 years) so we can forgive them for not updating investors on the strategy,” the analysts wrote.
“Based on the results, it looks like more of the same without the previously announced digital transformation towards NFTs.”
Regardless, the analysts believe GameStop stock can move higher. They have a ‘Hold’ rating and US$20 price target representing an upside of about 7% to GameStop’s share price at the time of writing of US$18.75.
Analysts at Wedbush noted that GameStop’s quarterly results showed signs of cost discipline, with revenues marginally better than expected and losses significantly lower than expected.
They noted that the company continues to face obstacles in its return to growth including the ongoing mix shift of game sales from physical to digital; declining hardware sales; far fewer big console game releases going forward with a notable shift to PC games which are 95% digitally delivered; and growth of gaming subscription services.
GameStop is also lacking a clear strategy to enter new categories that have the potential to drive growth, in their view.
“GameStop has around $1.2 billion in cash and can weather $100 million of annual losses for a decade or more. However, should its revenues decline by $150 to $200 million per year (which we think is highly likely), it may have trouble trimming costs fast enough to stem the growth of its losses,” the analysts wrote.
“Without a clear strategy to replace lost game sales, we think the company will see an acceleration of losses to $100 million annually, then $200 million, $300 million and more, with a likely runway of no more than five years.”
As such, the Wedbush analysts reiterated their ‘Underperform’ rating on GameStop stock and lowered their price target from US$6.20 to US$6.