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Tim Smith
GameStop Store Exterior

GameStop Corp. (GME) shares plunged 10.88% in extended-hours trading Wednesday after the video game retailer missed Wall Street’s quarterly earnings projections as gamers pivoted to digital downloads and cloud gaming subscription plans.

The company reported a second-quarter (Q2) loss of $1.40 per share, more than the $1.27 loss analysts had expected. Revenues of $942 million came in above the consensus estimate by 0.48% but fell $358 million from a year earlier. Moreover, same-store sales declined around 13%, even when adjusted for reduced stores operating during the quarter due to the pandemic. However, online sales jumped 800% as consumers accelerated their shift to digital purchases.

Through Wednesday’s close, GameStop stock has a market capitalization pushing toward $500 million and trades 21% higher year to date (YTD). Since early June, the shares are up 48%, outpacing the industry average over the same period by more than 30% as of Sept. 10, 2020.

Cost and Inventory Reductions

Management told investors the firm slashed expenses by $133.7 million during the quarter and reduced inventory by 50% on a year-over-year (YoY) basis to free up cash flow for navigating the current environment and launching new products.

“We believe the actions we are taking to optimize the core operations of our business by increasing efficiencies and creating a frictionless digital ecosystem to serve our customers, wherever and whenever they choose to shop, are enabling us to navigate the COVID-19 environment while positioning us well for the launch of the next generation of consoles,” CEO George Sherman said, per Barron’s.

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Wall Street View

Despite GameStop’s share price gaining considerably since early August, analysts remain mostly bearish on the bricks-and-mortar video gamer seller as consumers move away from physical discs. The stock receives 6 ‘Hold’ ratings, 1 ‘Underweight’ rating, and 2 ‘Sell’ ratings. The Street has a 12-month average price target on the shares at $4.79 – 35% below Wednesday’s $7.35 closing price.

Technical Outlook and Trading Tactics

GameStop shares broke out from a multi-month trading range in late August on above-average volume after an SEC filing revealed that between Aug. 13 and Aug. 28, RC Ventures purchased nearly 6 million shares in the company, giving it a 9.6% stake in video gamer retailer. Furthermore, the 50-day simple moving average (SMA) recently crossed above the 200-day SMA to generate a golden cross buy signal.

After-hours trading indicates the stock will open Thursday’s session around $6.55 – placing price back at the trading range’s top trendline, where previous resistance now becomes support. Those who buy the stock should consider setting a stop-loss order under the Aug. 31 wide-ranging day at $5.69 and targeting a move to crucial overhead resistance at $12.15.

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