© Reuters. FILE PHOTO: People walk by a GameStop in Manhattan, New York, U.S., December 7, 2021. REUTERS/Andrew Kelly/File Photo
By Zaheer Kachwala
(Reuters) – GameStop (NYSE:) shares fell 7% before the bell on Thursday on signs that it will take longer for the brick-and-mortar videogame retailer to stem a revenue decline due to tough competition and weak demand.
Once a meme-stock darling, the company’s third-quarter revenue fell and missed market expectations, underscoring the turnaround challenge faced by top investor Ryan Cohen, who became CEO and chairman in September.
“Fundamentally the business needs a radical rethink,” said Russ Mould, investment director at AJ Bell.
“GameStop faces intense competition from the likes of Amazon (NASDAQ:) and Ebay (NASDAQ:), and it needs to make its large store estate more appealing, which could cost a significant amount of money.”
Shares of the company have lost nearly a fifth of their value this year after shedding 50% in 2022 compared with the multifold growth seen during the pandemic.
The company has in recent months slowed its aggressive shift to e-commerce and instead relied more on brick-and-mortar stores where customers can also pick up online orders.
It has also sharpened its focus on cost controls, helping cut expenses nearly 24% in the quarter. That helped its adjusted earnings per share to break even, compared with expectations of 9 cents loss.
“Costs remain a bright spot for GME,” Jefferies analysts said, pointing to a 156 basis point rise in gross margins that was driven by lower freight expenses.
But they pointed to the 14% decline in the collectibles business as a concern, saying it could be driven by inventory-related reasons and broader demand weakness.
The current average recommendation for GameStop is “sell,” according to five analysts polled by LSEG. The median target price is at $10.50, down from $13 a month ago.
