What’s in store for Gamestop’s second quarter?

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GameStop Corp (NYSE:GME) is not really a normal stock. If it were, a results preview would be all about the trading outlook.


“Strong”, “Very Strong” and “above expectations” was how leading game publishers Activision, Electronic Arts, and Take Two Interactive last month described their respective recent quarters.


That should all add up to a positive outlook for a video game retailer like GameStop, right?


Well, maybe.


Activision – the Call of Duty and World of Warcraft parent – generated 67% of its net bookings from in-game digital sales, and, similarly, some US$680mln of Grand Theft Auto online publisher Take Two Interactive’s US$711.4mln of first quarter net bookings were digital.


EA generated US$1.05bn of its US$1.3bn net bookings from what it calls ‘live services’ and said that 58% of its full game sales are now digital. It all briefly sums up the bear case against Gamestop.


Put simply, fewer customers are buying games from brick-n-mortar stores.


It is the macro-play that underlies the hedge fund short-selling strategy that retail investors have traded against and overcome in these past months.


Sentiment and social media trends will only carry so far, even for a ‘meme-stock’ like GameStop.


At some point, business and financial metrics will matter.


Plainly attentions on GameStop’s result will be high as it releases results on Wednesday, especially on Reddit.


Gamestop was the initial spark that ignited the memestock revolution back in January, when an effort by wallstreetbets traders to squeeze short positions against the company sent the stock surging, quickly making headlines across the financial world and revealing the power coordinated retail traders can exert on markets.


Having started the year with a share price of US$17.25, the company’s stock is now sitting at a value of about US$165, a gain of around 850% so far this year.


With the surge having warded off many of the short sellers previously pressuring the firm (and bankrupting at least one of them), the firm is now engaged in a serious turnaround effort spearheaded by its chairman and major shareholder, activist investor Ryan Cohen.


It is these efforts that are likely to be the key focus of any outlook statement in the coming results.


As part of his strategy, Ryan has been cutting a swath through GameStop’s management since taking the helm earlier this year, with chief customer officer Frank Hamlin and chief financial officer Jim Bell having both left as part of the shake-up. Cohen has also poached a number of executives from Amazon in an effort to push the firm towards a digital retail model.


Investors will be keen to see how this activity translates to retailing success and financial liquidity.

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