Proactive Investors - Continue: YES / NO? … Please insert coins
Any Gen-Xer to have spent at least an afternoon in a coin-op arcade will be familiar with this frustrating prompt.
And, so it may be, for GameStop Corp (NYSE:GME) and its investors in due course albeit analysts at California-based stockbroker Wedbush reckon with around $1.3 billion the embattled video game and gaming collectables retailer can “remain solvent for the foreseeable future”.
The longer-term headwinds, however, will likely result in cash burn growth, Wedbush analyst Michael Pachter said in a note.
Sooner than long-term, Wednesday’s upcoming quarterly earnings could bring their own headaches, he highlights.
Noting but a few, he said: “GameStop appears to have lost market share in recent quarters, Microsoft’s latest hardware sales have been underwhelming, the ongoing digital mix shift is impacting new and pre-owned software sales, and the collectables business faces a challenging comparison following a weak Q1:23.”
Pachter also noted that GameStop fired its chief executive in June, followed by the departure of its chief financial officer in August.
With only interim replacements in-site, the retail has opted to shun the ‘investor call’ alongside Wednesday’s result – skipping the customary chat now for the second quarter in a row.
GameStop’s quarter may have been “fine”, Pachter said.
Nonetheless, he added: “There is little that GameStop can do to slow unfavorable margin mix shift towards hardware and away from software, nor can it slow the gradual declines of its new and pre-owned software businesses in the face of digital, mobile, and subscription threats.
“A net cash balance of around $1.3 billion should help it to remain solvent for the foreseeable future, but the long-term headwinds will likely result in cash burn growth.”
Wedbush repeated an ‘underperform’ rating for Gamestop, with a $6.20 per share price target that implies around 66% downside from the current price of $18.55.
For context, GameStop stock is down by some 33% in the past twelve months, but, retains around 7.5% of gains for the 2023 calendar year to date.
Consensus analyst forecasts see GameStop reporting $1.141 billion of second-quarter sales, whilst the Wedbush forecast is pitched lower, at $1.136 billion.
Pachter noted that ‘top selling’ games in the quarter included the new Zelda title for Nintendo Switch and the cross-platform release of Diablo IV, both of which the analyst said likely saw sales skew mostly to digital.
The broker is expecting to see a 17 cents earnings loss per share, whilst it notes that consensus envisages a 14 cents loss.
“The Q2:23 results report appears to be a toss-up, but several long-term headwinds are firmly in place,” the analyst commented.