The company also named former Amazon and Google executive Jenna Owens as its new COO
Shares of GameStop (GME) are under pressure on Wednesday after the company missed on the top and bottom lines in its first earnings report after the recent Reddit-fueled trading frenzy. The video game retailer also said in a filing that it was considering selling additional equity shares to fund its transformation. Following the news, Wedbush analyst Michael Patcher downgraded GameStop to Underperform, while his peer at Jefferies raised the stock's price target to $175 from $15.
RESULTS: GameStop reported fourth quarter adjusted earnings per share of $1.34 and revenue of $2.122B, both below consensus of $1.35 and $2.21B, respectively. The company also said fourth quarter comparable store sales were up 6.5% with global e-commerce sales increasing 175% and representing 34% of net sales in the fiscal 2020 fourth quarter versus 12% of net sales in the fiscal 2019 fourth quarter. GameStop is continuing to suspend guidance amid pandemic.
Additionally, the video game retailer said it is focused on transforming into a customer-obsessed technology company, with the Board and management looking to invest in technology capabilities, build a superior customer experience, expand product offerings, modernize U.S. fulfillment operations to improve speed of delivery and service, establish a U.S.-based customer care operation, and leverage the company's digital assets, including Game Informer and PowerUp Rewards, to increase market share within the growing online gaming community.
In a regulatory filing, GameStop also said that, since January 2021, it has been evaluating whether to increase the size of its at-the-market offering program and whether to potentially sell shares of its Class A Common Stock under the increased ATM program during the course of fiscal 2021, primarily to fund the acceleration of the company's future transformation initiatives and general working capital needs. The timing and amount of sales under the ATM Program would depend on, among other factors, GameStop's capital needs and alternative sources and costs of capital available to us, market perceptions about the company, and the then current trading price of its Class A Common Stock.
Additionally, GameStop said it has named former Amazon (AMZN) and Google (GOOG) executive Jenna Owens as its new chief operating officer.
TARGET HIKED TO $175 AT JEFFERIES: While keeping a Hold rating on the shares, Jefferies analyst Stephanie Wissink raised the firm's price target on GameStop to $175 from $15. The analyst believes the company's fourth quarter results "reflected the directional changes underway in the business model," with comp sales up 6.5% and e-commerce sales were up 175%. Wissink is recasting her GameStop model and valuation for the additional shift toward e-commerce and digital and affiliated value streams. The analyst expects store closures to persist and sales to transfer to dot-com. Upon closure, she estimates 40% of volume transfers to gamestop.com or nearby stores. While total revenues may come down, value per dollar of sales "should increase if non-retail streams are realized," Wissink contended.
Baird analyst Colin Sebastian also raised the firm's price target on GameStop to $25 from $13, keeping a Neutral rating on the shares. GameStop's report was mixed, as total sales and profit margins missed expectations but demand still exceeds supply for console hardware, which extends "a lifeline to the company" while management implements a strategy to transition from legacy physical retail to a technology-oriented e-commerce model, Sebastian told investors in a research note. The analyst believes the shares are currently pricing in an "optimistic 'bright blue sky' scenario," including close to an e-commerce multiple on physical retail sales. Further, he believes the stock's near-term performance and is being "influenced by external factors."
SELL GAMESTOP: More bearish on the name, Wedbush analyst Michael Pachter downgraded GameStop to Underperform from Neutral with a price target of $29, up from $16. The analyst noted that quarterly results fell below expectations due to COVID-19 mandated closures, shipping constraints during the holidays and severe supply limitations of new generation consoles. Patcher believes GameStop is well positioned to be a primary beneficiary of the new console launches, and remains "quite optimistic" that it will return to profitability by the end of fiscal 2021. However, the "high-profile sustained short squeeze" has spiked the share price to levels that are "completely disconnected from the fundamentals of the business," the analyst added.
Also commenting on the company's results, Bank of America analyst Curtis Nagle noted that while GameStop reported fourth quarter earnings per share of $1.34 that was above his estimate, the beat was driven "entirely" by a large tax credit in the quarter. The company's fourth quarter EBITDA of $48M, meanwhile, missed his $144M estimate by 66% given "very underwhelming" gross margins, Nagle told investors. GameStop reported that global comp sales were up 23% for February, but this compares to U.S. industry hardware and software sales up 82% per NPD, implying "a continuation of material share loss," he added. The analyst reiterated an Underperform rating and $10 price target on GameStop shares.
PRICE ACTION: In morning trading, shares of GameStop have dropped over 18% to $148.90.