Barrons Digital Reports GameStop Stock Soars on Surprise Profit

Barrons Digital has said that GameStop stock (ticker: GME) surged 37% in after-hours trading. Options markets ahead of the report had implied that GameStop stock would move 16%—up or down—after earnings, according to Bloomberg. Because meme stocks see heightened retail investor interest, they tend to experience wild trading when they’re in the news. An earnings report is a natural event for GameStop to enter the news cycle.

The company said sales in its hardware and accessories category rose 4.6% to $1.24 billion, while software sales were down 15% to $670.4 million. The collectibles category grew sales 12% to $313.2 million.

GameStop stock rose 4.6% in regular Tuesday trading. Fellow meme stock AMC Entertainment Holdings AMC +3.28% (AMC) was up 3.5%. GameStop led a pack of highly shorted stocks that surged in January 2021 after retail investors swapping theories on Reddit, Twitter, and TikTok piled in and went viral on social media. The stock is down 2.6% so far this year and 42% in the past 12 months.

Meme stocks still trade at levels that analysts consider elevated because of retail enthusiasm and widespread bets against the stocks. GameStop was able to raise cash and pay debt by selling stock amid its second life as a meme stock, but the firm’s outlook is still dampened by a shift to digital downloads. The firm’s investments in a marketplace for nonfungible tokens—like many Web 3.0 endeavors—hasn’t lived up to the hype.

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S3 Partners’ Ihor Dusaniwsky told Barron’s that based on moves in after-hours trading, short sellers were down about $356 million in mark-to-market losses. He notes GameStop’s short interest was recently about 21.8% of shares available for trading.” I expect a wave of short covering tomorrow if this price level holds, and the short squeeze begins,” he said.

On the firm’s earnings call, CEO Matt Furlong touted cost cuts and said the firm is focused on profitable growth. He didn’t provide an outlook or take questions from analysts.

The company’s earnings call was set for 5 p.m. ET. said prior to the report that he didn’t expect the firm to provide an outlook or take questions from analysts during its call, which has become the routine for GameStop in recent years.

Wedbush analyst Michael Pachter maintained an Underperform rating and a $5.30 price target going into the earnings report.

“Management has proven adept at making high-profile decisions that are generally well-received by its meme stock investor fanbase between the gradual NFT marketplace rollout, stock split, and various cost cutting initiatives,” Pachter wrote last week. “Therefore, providing guidance has become an afterthought.”

Pachter had predicted “significant cash burn” through at least full-year 2023, which could force the firm to look into more stock sales. If the firm can instead build on its profitable quarter, it would go a long way to prove critics wrong.

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Asked after the report if he believed the quarter would be a one-off or a big shift, Pachter said, “I’d say just one good quarter.”

“They cut costs a lot, which is an encouraging sign, but it’s not likely that they can save their way to prosperity. I think the results are a one-off and expect a return to losses going forward.”

GameStop’s initial meme stock fame began when Chewy CHWY +4.95% co-founder Ryan Cohen mounted an activist campaign in late 2020. He joined the firm’s board just before the January 2021 meme stock rally. Cohen became chairman in June 2021. Since then, GameStop has sought to pivot to becoming a tech company, including with the rollout of its NFT marketplace. Pachter described its start as “underwhelming.”

The profitable quarter represents a win for Cohen and his retail investor fans.