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GameStop (NYSE:GME) Misses Q3 Sales Targets

StockStory - Wed Dec 6, 2023

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Video game retailer GameStop (NYSE:GME) fell short of analysts' expectations in Q3 FY2023, with revenue down 9.1% year on year to $1.08 billion. It made a non-GAAP loss of $0 per share, improving from its loss of $0.31 per share in the same quarter last year.

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GameStop (GME) Q3 FY2023 Highlights:

  • Revenue: $1.08 billion vs analyst estimates of $1.18 billion (8.8% miss)
  • EPS (non-GAAP): $0 vs analyst estimates of -$0.08 ($0.08 beat)
  • Free Cash Flow of $11.1 million, down 93.2% from the same quarter last year
  • Gross Margin (GAAP): 26.1%, up from 24.6% in the same quarter last year

Drawing gaming fans with demo units set up with the latest releases, GameStop (NYSE:GME) sells new and used video games, consoles, and accessories, as well as pop culture merchandise.

Electronics & Gaming Retailer

After a long day, some of us want to just watch TV, play video games, listen to music, or scroll through our phones; electronics and gaming retailers sell the technology that makes this possible, plus more. Shoppers can find everything from surround-sound speakers to gaming controllers to home appliances in their stores. Competitive prices and helpful store associates that can talk through topics like the latest technology in gaming and installation keep customers coming back. This is a category that has moved rapidly online over the last few decades, so these electronics and gaming retailers have needed to be nimble and aggressive with their e-commerce and omnichannel investments.

Sales Growth

GameStop is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the other hand, it has an edge over smaller competitors with fewer resources and can still flex high growth rates because it's growing off a smaller base than its larger counterparts.

As you can see below, the company's revenue has declined over the last four years, dropping 6.1% annually.

GameStop Total Revenue

This quarter, GameStop reported a rather uninspiring 9.1% year-on-year revenue decline, missing Wall Street's expectations. Looking ahead, the Wall Street analysts covering the company expect revenue to remain relatively flat over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Key Takeaways from GameStop's Q3 Results

With a market capitalization of $4.55 billion, GameStop is among smaller companies, but its more than $909 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.

We were impressed by how significantly GameStop blew past analysts' EPS expectations this quarter. We were also excited its gross margin outperformed Wall Street's estimates. On the other hand, its revenue unfortunately missed analysts' expectations, driven by worse-than-expected hardware and software sales. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The market was likely expecting more top-line growth, however, and the stock is down 2.6% after reporting, trading at $14.45 per share.

So should you invest in GameStop right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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