GameStop New York Stock Exchange: GME shares rose after the Q3 report, but so what? The report contains a profit surprise, but the underlying reason and business indicators are consistent with the trend. This company continues to shrink and consume itself at the expense of investors. The company only turned a profit in the third quarter due to higher interest income related to cash accumulation.
The company has raised billions of dollars in 2024, strengthening the balance sheet for yet-to-be-determined turnaround efforts.
The bottom line is that shareholder value is falling, the underlying business is losing money, and the stock is ridiculously overvalued. The only thing that is certain is volatility, but the market is skewed towards lower prices, which is the most likely scenario in 2025.
The only bullish factor for GameStop is its cash balance, which has increased 500% over the past year. Interest income on the balance sheet now exceeds $4.6 billion and is enough to sustain operations until something else happens. However, with its core business losing money and net income of $17.4 million, the company has little room to maneuver without destroying its balance sheet.
The bad news is that cash accumulation has been linked to stock sales, causing share counts to increase an average of 23% in the third quarter and shares outstanding to increase by 43%, severely impacting shareholder value. The net result on the balance sheet is an increase in total equity by 2.8 times, but a decrease in book value to approximately $11, more than 50% below the reported market price.
GameStop: Business Going Ahead
GameStop’s third-quarter results were mixed compared to MarketBeat’s consensus estimates, with revenue below targets and profit above. The reason for the excess net profit has been eliminated; The revenue decline was driven by declines in all three retail operating segments, driven by a 27% decline in its core hardware business.
Given gaming industry trends, GameStop’s total sales are now a fraction of what they once were and will likely continue to decline. Game makers face headwinds including rising development costs and waning interest in the wake of the pandemic, while consumers spend more time outdoors and are tired of advertising and constant in-game costs.
Video games are still popular, but the market is normalizing and mainstream gamers are more price-conscious than ever.
Business margins remain tight and there are risks to earnings prospects. The company cut selling and administrative expenses, which were not enough to generate operating profit. The operating loss exceeded $33 million, or about 61% of interest income, more than doubling the percentage of revenue from last year.
On the risk side, the FOMC is set to cut rates in 2025, albeit at a slower pace than previously forecast, which would effectively reduce the company’s ability to generate interest income. In this scenario, GameStop has bought some time, but the clock is still ticking and a recovery plan needs to be put in place.
Sellers pose risks to GameStop
GameStop stock forecast today
US$10.00
-62.89% DisadvantageSell
Based on 1 analyst estimates
| High forecast | US$10.00 |
|---|---|
| Average forecast | US$10.00 |
| Low forecast | US$10.00 |
GameStop stock forecast details
Sell interest in GameStop is mixed, with only one analyst rating the stock at Sell, while institutional interest is the opposite. Institutions have been buying these stocks on balance throughout 2024, keeping the market within its trading range, with activity peaking in the fourth quarter, consistent with stock prices rising to new highs.
The market is currently above one resistance target, but still below the critical target at the midpoint of the range. If institutions continue to buy these shares, they will likely rise; the risk is that they will not, and may even begin to sell, adding downward pressure on the market.
In terms of short interest, the short interest ratio declined from its peak, mainly due to the increase in the number of shares, but increased in late November as short sellers sold off stocks on the rise.
GameStop Corp. price chart. (GME) as of Wednesday, December 11, 2024
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