GameStop sales struggle after trading frenzy

Video games retailer GameStop continues to battle falling sales - but its financials haven't dimmed the interest surrounding its stock.

The Texas-based firm captured attention in January when its shares surged amid a trading war between Wall Street pros and amateur investors.

The shares jumped from less than $20 at the start of the year to nearly $350 - and still hover around $180 apiece.

Analysts say that's far higher than the firm's performance might suggest.

Sales slipped 3% in the last three months ended 30 January to $2.1bn, compared to almost $2.2bn during the same period in 2019, GameStop said on Tuesday, in its first financial update for investors since the trading battle.

The drop - the ninth straight quarter of declines - came amid significant store closures, partially due to the pandemic, and despite a 175% jump in e-commerce.

But profits in the quarter increased, and its annual loss narrowed, from more than $470m in 2019 to $215m last year.

The firm also said it had seen an uptick in business in February, as buyers seek out the latest gaming consoles.

But Joe Feldman, senior managing director at Telsey Advisory Group, said there was little in the firm's update to justify the sky-high enthusiasm that the firm's share prices imply.

"The stock isn't trading on fundamentals," he said, characterising the results as "pretty mediocre", despite being judged against a weak performance in the prior year.

GameStop, a mainstay of American malls, had about 5,000 stores across 10 countries in December.

Interest in its prospects - at least among retail traders - remains strong. A call hosted by the company on Tuesday to discuss the results drew so many listeners that some would-be participants were turned away.

Despite the attention, executives declined to take any questions, though the firm did reveal it was considering selling additional shares to raise more money, given the attention it has received.

Shares in the firm - which have continued to see major swings since January - dropped more than 10% in after-hours trade following the report.

GameStop's share gains earlier this year were fuelled in part by small time traders, swapping tips on social media, who saw a chance to pressure Wall Street firms that had bet against the stock - and would have to buy shares if the price rose more than they expected.

That, in turn, could generate a kind of buying frenzy or "short squeeze" - and chance for profit for the little guys.

Aside from financial tactics, many of the amateur traders have also said they thought Wall Street pros were dismissing the firm's prospects too quickly.

Much of their confidence is tied the investment of billionaire Ryan Cohen, a 35-year-old entrepreneur who sold his online pet retail company Chewy to Petsmart in 2017 and revealed a major investment in GameStop last year.

He has since pushed for major changes at the firm, aiming to update it for an era when many video games are downloaded online.

The company permanently closed nearly 700 stores last year. Two top executives have departed recently, including the firm's chief customer officer on Tuesday.

Mr Feldman, whose firm has said GameStop shares are worth about $33, said the moves are similar to what most traditional retailers are attempting - and are hardly enough to bring about the massive transformation the firm's current share price implies.

"This is not new stuff that they're talking about and it's certainly not anything transformational on the level that I think a lot of the bullish Reddit users are hoping and expecting out of this company," he said.