Topline
Shares of beleaguered video game retailer GameStop soared more than 50% at times in extended trading Tuesday after the company reported its first quarterly profit in two years, surprising Wall Street analysts who had largely ignored the stock since it became the focal point of a meme-trading craze beginning in late 2020.
GameStop’s stock soared Tuesday after the company reported its first quarterly profit in two years.
Key Facts
GameStop reported a net income of $48.2 million for the fourth quarter of 2022, after recording losses of $147.5 million during the same period a year earlier.
The positive news sent the stock up some 49.6% in after-hours trading to $26.40 as of 6:20 p.m. Eastern time, after it rose 4.6% and closed at $17.65 while the market was open Tuesday.
Net sales fell 1.2% to $2.23 billion, led by a 15% decline in software sales to $670.4 million, but there were encouraging signs elsewhere.
Sales of physical collectibles—like toys and clothing—increased 12% to $313.2 million, with the company noting collectibles is an area where it is “prioritizing long-term growth.”
The $2.23 billion in net sales beat the estimates of analysts who do follow the stock, who were expecting $2.18 billion, according to Bloomberg.
Key Background
GameStop’s stock has been extremely volatile over the past few years after retail traders piled into the stock in late 2020 and early 2021, boosting its price from less than $20 a share to more than $400 in late January 2021. The company’s sales had slumped for years before the meme-trading craze, as games increasingly became available for digital download, making it unnecessary for consumers to visit physical game stores. The frenzy largely came about after large hedge funds took short positions on the stock, betting it would continue to decline. An army of individual investors centered around users of the Reddit forum “WallStreetBets” then bought the stock en masse in a short-squeeze play, driven by an apparent mix of animosity toward institutional investors and a nostalgic connection to the company. The squeeze caused hedge funds to lose billions, with Melvin Capital going out of business a year later, in part due to its heavy losses from the GameStop short.
Further Reading
GameStop Stock: In Battle Between Hedge Funds And Reddit Day Traders, Melvin Capital Closes Its Short (Forbes)
Melvin Capital, hedge fund torpedoed by the GameStop frenzy, is shutting down. (New York Times)
Source: https://www.forbes.com/sites/nicholasreimann/2023/03/21/gamestop-shares-skyrocket-50-in-extended-trading-after-reporting-surprise-profit/