GameStop falls after Q3 revenues dip about 5% year on year

Video game and collectibles retailer GameStop just reported its Q3 results (the 13-week period ended November 1), with a big top-line miss and better-than-expected numbers on the bottom line.

• Net sales: $821 million (consensus estimate: $987 million)

• Adjusted net income: $139.3 million (consensus estimate: $107 million)

(Note: another phrase for “consensus estimate,” in this case, is “Baird analyst Colin Sebastian’s estimate.” He’s the only one who submitted projections to Bloomberg.)

Shares are down about 5% in a knee-jerk reaction to the results.

Cash flows from operations were positive for the sixth consecutive quarter, at $111.3 million, extending a record run in the green for the company.

Despite this solid operational performance, shares were down about 25% year to date heading into this report.

The retailer’s operational turn has been in large part due to expense control under CEO Ryan Cohen’s leadership. However, its top line has also been buoyed by strong growth in its collectibles business, thanks to the likes of “Pokémon” cards and Labubus. That being said, hardware hasn’t gone the way of the woolly mammoth, and still makes up the biggest portion of the firm’s sales.

Hardware was the primary reason sales fell short of Sebastian’s estimate this quarter, while collectibles revenues soared nearly 50% versus the same quarter a year ago.

GameStop’s equity warrants, which were distributed during this quarter to shareholders of record as of October 3, have boomed since late November. The warrants hit a closing low of $2.55 on November 20, and traded around $4.00 ahead of this release. These entitle their holders to buy a share of GameStop at $32.00 until expiration on October 30, 2026.

This bounce coincided with a recovery in GameStop shares as well as the broader market.

Given GameStop’s history as a meme stock with legendary, episodic runs, some medium-term optionality is not without value, to put it mildly.