GameStop's stock experiences a sharp decline following earnings that fail to meet expectations (2024)

GameStop Corp. (GME), the traditional video game retailer and well-known meme stock, experienced a sharp decline of more than 15% during extended trading on Tuesday following the release of its quarterly earnings report. The company's earnings fell significantly below Wall Street's projections, reflecting challenges posed by the increasing popularity of digital downloads and weakening consumer expenditure.

For the three-month period ending Feb. 3, GameStop, headquartered in Grapevine, Texas, reported adjusted earnings of 22 cents per share, falling short of analysts' expectations of 30 cents per share. Revenue for the period amounted to $1.79 billion, down from $2.23 billion a year earlier and missing the consensus estimate of $2.05 billion. Notably, hardware and accessories sales declined by 12% year-over-year (YOY) to $1.09 billion, while software sales dropped by 31% to $465 million.

Wedbush analyst Michael Pachter highlighted the adverse impact of digital downloads on physical retail, emphasizing the need for innovative strategies to drive in-store traffic and revenue growth. Over the past year, GameStop responded to online competition and changing consumer behavior by reducing its workforce. As of February, the company had approximately 8,000 full-time salaried and hourly associates globally, alongside 13,000 to 18,000 part-time hourly associates.

This downsizing effort, coupled with the cessation of operations in Ireland, Switzerland, and Austria, aligns with GameStop's pursuit of sustained profitability. Despite these initiatives, the company's stock price has continued its multi-year downtrend, facing resistance from a long-term trendline. Investors are advised to observe how the stock reacts to the critical support level at the 2023 low of $11.83. A bounce from this level could signal the formation of a potential double-bottom pattern, while a breach could trigger further downside momentum.

Following the earnings announcement, GameStop shares plummeted by 15.2% to $13.14 in after-hours trading, adding to its year-long decline of about one-third in value.

In general, GameStop witnessed a significant decline in its stock value following the announcement of its fourth-quarter earnings report during extended trading on Tuesday. The earnings fell notably short of analysts' forecasts, highlighting challenges associated with the industry's transition towards digital downloads and a downturn in consumer spending trends. According to the company's 10-K filing, GameStop has implemented strategic measures aimed at securing long-term profitability. This includes the reduction of the workforce and the cessation of operations in several international markets. Investors are advised to closely monitor the performance of GameStop's stock in response to its 2023 low of $11.83. This price point serves as a crucial indicator, offering valuable insights into the potential direction of the stock and prevailing market sentiments.