GameStop Corp (NYSE:), the favorite video game retailer of the Reddit crowd, shows investors that his company has momentum as it implements its turnaround plan.
In its report released Wednesday, the physical electronics supplier reported better-than-expected results, posting its first quarterly revenue growth in three years. For the quarter ended May 1, it had revenue of $1.28 billion, up 25% from the prior year. While the company declined to provide any future guidance, GameStop said May sales were up about 27% from a year earlier.
The company was also able to increase its cash reserves and reduce its debt, thanks to the sale of nearly $552 million of its stock during the quarter. It plans to file papers to sell up to 5 million shares, after selling 3.5 million shares in April.
As the company's game console sales rebound, the Texas-based company is also rapidly working on its plan to turn a retailer into an e-commerce powerhouse. Ryan Cohen, an activist investor who became GameStop chairman after building a 13% stake, told investors on Wednesday that he won't let them down.
"We're trying to do something that no one in the retail space has ever done," Cohen, who is also a co-founder of Chewy (NYSE:), said at the company's annual meeting. “But we believe we have the right pieces in place and we have clear goals: to satisfy customers and drive long-term shareholder value.”
Although investors know little about his actual strategy for turning GameStop business around, his recent hires show that he is moving away from the physical model.
Newly appointed CEO Matt Furlong headed Amazon.com's Australian business, while CFO Mike Recupero held a similar position at Amazon's North American consumer arm. These major changes follow Cohen's previous overhaul of GameStop's management, which added about a dozen senior executives from similar digital backgrounds. warrant a 1,500% rally in GameStop stock this year. GameStop has been one of the best meme stocks this year, more on a social media buzz than business fundamentals. The stock closed at $220.39 Thursday, down 27.6% on the day.
Weekly GameStop card.
Baird analyst Colin Sebastian reiterated his neutral assessment of the stock after the earnings report, saying the reversal plan lacks details.
"While GameStop's board continues to shake the management deck, its goal of transforming into a 'technology' company that delights gamers remains largely a mystery, especially as the video game industry's shift towards downloads , streaming and cloud services is accelerating," the note said.
Baird, who has a price target of $25 per share for GameStop, added:
"No doubt the console transition period provides a lifeline, but games are not dog food, and investors deserve more than memes to appreciate a company's fundamental long-term prospects."
Another piece of evidence showing that institutional investors find GameStop stocks too loose from fundamentals came from a Bloomberg report that said fewer Wall Street analysts are now covering the stock than last year.
The video game retailer is currently followed by four analysts, up from nine analysts at the start of the year. As of Wednesday, GameStop has two hold and two sell ratings, according to data collected by Bloomberg.
Starting point
GameStop activity and the turnaround show some progress after a buying frenzy by the social media-inspired investors. But that progress isn't enough to attract serious money managers who still haven't seen the stock's rapid rise this year, backed by fundamentals.
