TLDR
- GameStop posts fiscal Q3 earnings Tuesday with analysts projecting $987.4 million in revenue, up 15% from prior year
- Wall Street expects $0.20 per share earnings compared to $0.06 last year as profitability continues improving
- Options market prices in 9.51% price swing following the earnings announcement Tuesday afternoon
- Company reported $8.7 billion cash position and $528.6 million in Bitcoin at end of Q2
- Hardware sales climbed 31% while collectibles category exploded 63% higher in most recent quarter
GameStop reports fiscal third-quarter earnings Tuesday after markets close. Wall Street analysts forecast revenue of $987.4 million, representing 15% growth versus the same period last year.
Earnings projections sit at $0.20 per share. That’s a substantial increase from the $0.06 reported in last year’s third quarter.
The video game retailer has beaten profit estimates throughout the past year. GameStop delivered earnings beats exceeding 61% in each of the last four quarters.
Market Prepares for Movement
Options traders are positioning for volatility around the report. Pricing indicates expectations for a 9.51% move up or down after results drop.
That’s slightly below GameStop’s average post-earnings swing of 10.4% over the previous three quarters. The stock gained 4.54% in the past five sessions but trades down 25% year-to-date.
Shares have fallen 16% over the trailing twelve months. Weaker retail sales and questions about capital allocation have pressured the stock.
Analysts expect similar 15% revenue growth for the current holiday quarter ending in early February. These projections follow a period where revenue gains are being measured against weak comparisons.
The last three quarters of fiscal 2024 saw declines of 29%, 31%, and 20% respectively. Current growth still leaves revenue below levels from two years ago.
Business Model Evolves
GameStop’s revenue composition has changed drastically. Hardware sales jumped 31% in the second quarter, boosted by Nintendo’s Switch 2 console launch.
Collectibles have emerged as the second-largest revenue driver. The category rocketed 63% higher during Q2.
Software sales continue declining as digital distribution takes over. The segment fell 27% in the most recent quarter and now represents less than 16% of total revenue.
Game publishers selling directly to consumers through downloads and streaming services have disrupted GameStop’s traditional business. Physical discs and cartridges face an uncertain future.
The retailer reported Q2 revenue of $972.2 million, easily topping the $900 million Wall Street estimate. GameStop has now delivered six straight quarters of double-digit revenue growth.
Financial Position Strengthens
GameStop closed Q2 with $8.7 billion in cash, up from $4.2 billion one year prior. The company also holds Bitcoin valued at $528.6 million.
The stock trades at a price-to-earnings ratio of 23 based on this year’s projected profits. This represents the third consecutive profitable year for the retailer.
GameStop hasn’t posted three straight years of profits since fiscal 2017. The company also appears set for back-to-back years of earnings growth, a feat last accomplished in fiscal 2015.
Gross margins compressed in Q2 as the revenue mix tilted toward lower-margin hardware. Total profitability still expanded as sales volume more than offset the margin pressure.
GameStop has missed earnings estimates in only two of the past nine quarters. The company’s cash hoard gives it flexibility to invest in the business or return capital to shareholders.
Tuesday’s report will show whether the retailer can maintain momentum through the critical holiday shopping season. Investors are watching for signs that the transformation can produce sustainable long-term growth.
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