As the selloff of GameStop (NYSE:GME) stock continues following its latest earnings release, analysts at one firm said in a note Wednesday that they expect the company’s demise. GME stock is down 16% at the time of writing on Wednesday.
With the stock struggling over the last 12 months, down 42%, analysts have been taking a closer look at the factors driving this downward trajectory. Amidst the volatility, the analyst's cautionary outlook sheds light on the challenges facing GameStop.
GameStop stock falls after earnings
GameStop reported its earnings after the close Tuesday, reporting Q4 earnings of $0.22, $0.06 worse than the analyst estimate of $0.28. Revenue for the quarter came in at $1.79 billion, below the consensus estimate of $2.07 billion and last year’s revenue of $2.22 billion.
However, net income was $63.1 million for the fourth quarter, compared to net income of $48.2 million for the prior year’s fourth quarter, while cash, cash equivalents, and marketable securities were $1.199 billion at the close of the quarter.
Net sales were $5.273 billion for fiscal year 2023, compared to $5.927 billion for fiscal year 2022, while net income was $6.7 million, compared to a net loss of $313.1 million for fiscal year 2022.
GME stock demise coming says analyst
The earnings result prompted Wedbush analysts to state: “We expect the company’s demise at some point later this decade.”
“Despite a quarter that featured an extra week and modestly positive industry trends, GameStop delivered a large sales decline as it continues to deal with a mix shift in software sales, declining hardware sales, fewer large console releases, and the growth of subscription services,” argued Wedbush.
However, they noted that the cash burn and losses appear to be manageable going forward, and they believe that with its current cash balance, GameStop can weather $100 million of annual losses for a decade or more.
Wedbush stated that with its current cash balance, GameStop can weather $100 million of annual losses for a decade or more.
While that could provide GME with room to turn around its business, the firm said should the company’s revenues decline by $150 million to $200 million per year, which they think is “highly likely given its lack of clear strategy to replace lost games sales,” it may have “trouble trimming costs fast enough to stem the growth of its losses.”
“If we’re right, GameStop has a likely runway of no more than five years,” argues Wedbush. “The demise of GameStop is outside the 12-month window we use for our price target, but we expect the company’s demise at some point later this decade.”
In a note Wednesday, the firm cut its price target for the stock to $5.60 from $6 per share, maintaining an underperform rating. The new price target implies a downside risk of nearly 60% based on Wednesday’s price of $13.10, as of 11:20 ET (15:20 GMT).