GameStop (GME) shares spiked in the immediate aftermath of the company reporting a considerable decline in revenue for the fourth quarter of fiscal year 2024, with sales totaling $1.28 billion, a 28.5% drop from the previous year. Despite this decline, the company reported a significant increase in net income, reaching $131.3 million, compared to $63.1 million in the previous year. The earnings per share of $0.30 also surpassed expectations. Further, GameStop announced a notable strategic decision by approving Bitcoin as a treasury reserve asset. This decision marks a shift in investment policy as the company navigates the ongoing change in product sales mix while hoarding a substantial cash reserve of $4.775 billion.
Top-line Miss, Bottom-Line Beat & Crypto to Boot
GameStop operates as a specialty retailer focusing on games and entertainment products across multiple regions, including the United States, Canada, Australia, and Europe. The company’s offerings encompass new and pre-owned gaming platforms, as well as accessories such as controllers and gaming headsets. Additionally, GameStop offers virtual reality products, memory cards, and a variety of gaming software, including both new and used titles. Beyond gaming, GameStop offers collectibles related to gaming, television, movies, and pop culture, with a focus on licensed merchandise.
The company reported fourth-quarter revenue of $1.28 billion, which fell short of expectations by $200 million while marking a year-over-year decline from $1.794 billion. However, net income significantly increased to $131.3 million from $63.1 million, while SG&A expenses decreased from $359.2 million to $282.5 million. Adjusted EBITDA rose to $96.5 million from $88.0 million. Non-GAAP EPS of $0.30 surpassed expectations by $0.22.
On an annual basis, GameStop’s net sales totaled $3.823 billion for the fiscal year 2024, down from $5.273 billion in the previous year. Nonetheless, net income saw a marked improvement, rising to $131.3 million from $6.7 million the previous year, although adjusted EBITDA decreased to $36.1 million from $64.7 million. As of year-end, the company reported holding $4.775 billion in cash, cash equivalents, and marketable securities.
GameStop has announced that its board unanimously approved an update to its investment policy to include Bitcoin as a treasury reserve asset. This decision signifies a strategic move by the company to diversify its reserves and potentially leverage the anticipated growth offered by Bitcoin.
Is GME Stock a Buy?
Wedbush analyst Michael Pachter has issued an Underperform rating for GameStop, with a price target of $10, noting that while GameStop has approximately $10 per share in cash, accounting for over 4% of its annual income, there is no clear strategy to utilize this capital effectively. The company’s shares trade at 2.4 times their cash value, yet it continues to incur operating losses, resulting in an annualized return on market capitalization of less than 2%. Recent strategies, including accelerated store closures, a move into the trading card market, and investments in cryptocurrency, lack clear execution plans and appear disconnected from the company’s core business, raising concerns about a sustainable path to profitability. These initiatives come after unsuccessful attempts to expand into omnichannel and NFT trading. The current valuation of GME shares does not adequately reflect these significant challenges.
GameStop is rated a Moderate Sell with an average price target for GME stock of $10.00, representing a potential downside of 60.63% from current levels.
