GameStop predicted to haemorrhage sales this year and next year too

GameStop will see sales drop this year and again next year, even with the stimulus of a new Grand Theft Auto game and a new Nintendo console – that’s according to California-based stockbroker Wedbush.

Wedbush analyst Michael Pachter, who reckons GameStop shares are really worth around $7 each, published a note following the news that GameStop was recapitalising helped by this week’s frenzied share price rise.

GameStop stock took traders on quite a journey this past week.

The share price more than doubled from around a starting point of $17, spiking to highs around $64 on Tuesday, before crashing on the news that the company intends to sell new stock to raise fresh capital for the business.

Now, having closed Friday’s session the price is down to $22.21, the heat appears to have come right out of ‘memestock’ rally 2.0.

For GameStop, the key will be to secure its cash injection and use it wisely.

Management may also need fresh ideas, as well as fresh capital if the ailing retailer is to arrest the slide in sales against the continuing transfer of gamers from physical brick-and-mortar stores to online e-tailers.

At Wedbush, analyst Michael Pachter described the company’s plan to sell 45 million new shares “at market” prices as prudent, as he said it will boost cash reserves whilst GameStop is struggling to re-focus its business and reverse its operating losses.

Indeed, he highlighted that Friday’s trading update from management also revealed that GameStops’ sales had declined more sharply than the market had forecast, likely because cost-cutting efforts had seen more rapid store closures.

“We do not believe GameStop can ‘save its way to prosperity’, and expect the mix of software sales to continue to shift to digital and away from physical,” Pachter said in a note.

“While there will likely be a new Nintendo console next year and an overall lift in software sales from GTA VI, we think GameStop will see continuing sales declines next year as well.

“Ultimately, the company must deploy its cash productively or continue to hope that it can issue more shares at elevated levels to forestall the inevitable.”

Wedbush has an ‘underperform’ rating for the games retailer, with a price target of $7.00 per share.

GameStop share sale

On Friday, GameStop launched a new share sale.

Capitalising on recent share price strength, GameStop planned to sell 45 million new shares as it launched a primary share offering priced “at the market”.

Closing Friday's session at $22.21 per share, GameStop was down $5.46 or 19% as the company’s bankers set about marketing the stock.

GameStop trading update

On Friday, GameStop told investors it expects to report a decline in first-quarter sales.

It means new guidance is pitched in a range between $872 million and $892 million, a sharp decline from the $1.24 billion achieved for the same quarter last year.

The retailer added that its net loss for the quarter would be between $27 million and $37 million, compared to a $50.5 million loss for the same period a year ago.

GameStop’s struggles have come amid rising e-commerce competition, and the rise in direct digital game sales on consoles and PCs, and, in response, management has been pushing cost-cutting programs and job cuts.

It’s a predicament that is at the core of the ‘bear’ case that’s led Wall Street institutions to short GameStop shares – a trading call that’s been punished by the so-called “short squeeze” by retail investors for the second time since 2021.

Earlier this week, GameStop shares had surged following posts from the long-dormant account of “Roaring Kitty,” also known as Keith Gill, the key figure in the 2021 meme stock phenomena that last saw GameStop shares racing higher.