There seems to be no end to the agony for shareholders of GameStop Corp. (NYSE:GME). On the heels of its latest earnings announcement, the shares have taken another hit, off about 11% to $12.60. To put this into perspective, the 52-week high on GME stock was about $50 a few years ago. In fact, the shares have not been at these levels since about 2005!
OK then, so what are shareholders to do now? Is there any hope left?
Well, before answering these questions, let’s first take a look GameStop earnings. During the fourth quarter, revenues jumped by 15% to $3.5 billion. The consensus forecast, on the other hand, was calling for the top-line to come in at $3.27 billion.
But the GameStop earnings report also showed hemorrhaging on the bottom-line. There was a net loss of $105.9 million, or $1.04 per share, compared to a profit of $208.7 million, or $2.04 per share during the same period a year ago.
Keep in mind that the loss was mainly due to an asset impairment from the Technology Brands segment. This was the result of a major change in the compensation structure of AT&T Inc. (NYSE:T) as well as the delays in Apple Inc.’s (NASDAQ:AAPL) iPhones.
Because of this, the fourth-quarter sales plunged by 14.2% to $219.7 million. Note that GME has taken actions to deal with these issues, such as with the closing of underperforming locations.
Although, when adjusting the GameStop earnings, there was a profit of $2.02 per share. By comparison, Wall Street was forecasting $1.97 per share.
But then again, this may be a bit misleading. According to Benchmark analyst Mike Hickey, he thinks that the tax reform bill should have added 35 cents a share. As a result, he lowered his price target on GameStop stock to $12.
Something else to note: GME’s guidance was also far from encouraging. For the full-year, the company is looking at earnings of $3 to $3.35 per share and revenues to decline from 2% to 6%. The consensus was for earnings of $3.32 per share and a -1.5% growth rate.
Now there were certainly bright points in the GameStop earnings report, such as:
- New hardware sales rose by 44.8%. The main driver was Nintendo Co., Ltd’s (ADR)(OTCMKTS:NTDOY) hugely popular Switch platform.
- Collectibles sales increased by 22.8% to $260.8 million. The strength came from more licensing deals and targeted promotions for the holiday season.
- Comparable sales growth was 14.2% in the US and 8.3% in international markets.
Bottom Line on GameStop Earnings
GME stock is certainly trading at dirt-cheap levels, with the forward price-to-earnings ratio at only 4X. The company also sports an attractive dividend of 11%. And with cash flows remaining positive, it seems like the company should be able to maintain the payout.
But going forward, there are few catalysts to get things back on track. The company’s fortunes are largely tied to the holiday season – which is a long wait.
In the meantime, the executive suite is in turmoil. Earlier in the year, the company’s CEO died and there were also several firings of senior executives.
Although, perhaps the biggest challenge is the secular change in the gaming industry — as consumers continue to move away from traditional forms of distribution.
Of course, console and game developers like Electronic Arts Inc. (NASDAQ:EA), Activision Blizzard, Inc. (NASDAQ:ATVI), Microsoft Corporation (NASDAQ:MSFT) and Sony Corp (ADR)(NYSE:SNE) have been leveraging their streaming technologies, which means cutting out retailers.
Yet when looking at the near-term, GME stock is still probably a good way to get yield. However, it’s important to keep a sharp on the company.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.