While GME has risen almost $4 or 15% to $30.90 since the company announced its third fiscal quarter results nearly two weeks ago, the key takeaway is the basic story hasn’t changed. Revenue continues to decline and it is bleeding money. However, the bleed is less, and the company has a very solid balance sheet since it sold almost $3.5 billion in stock this year. Note that company does not hold a conference call when it announces its quarterly financial results.
GameStop’s fiscal year end is end of January or the very beginning of February. Between fiscal 2017 to 2019 revenue ranged from $7.97 to $8.55 billion. However, revenue took a downturn in fiscal 2020 (pretty much calendar 2019) even before Covid hit, down 22%. Except for fiscal 2022, revenue has or is forecast to decline through fiscal 2026 (January 2025). Between fiscal 2019 to fiscal 2025 revenue is projected to decline by 51%.
- Fiscal 2017: $8.0 billion
- Fiscal 2018: $8.5 billion, up 7%
- Fiscal 2019: $8.3 billion, down 3%
- Fiscal 2020: $6.5 billion, down 22% (pre-Covid)
- Fiscal 2021: $5.1 billion, down 21%
- Fiscal 2022: $6.0 billion, up 18%
- Fiscal 2023: $5.9 billion, down 1%
- Fiscal 2024: $5.3 billion, down 11%
- Fiscal 2025: $4.0 billion estimated, down 24%
- Fiscal 2026: $3.8 billion estimated, down 7%
While GameStop’s yearly operating cash flows don’t exactly mirror the company’s revenue changes overall, the decline in revenues has led operating and free cash flows to move from positive to negative.
- Fiscal 2017: Positive $537 million
- Fiscal 2018: Positive $435 million
- Fiscal 2019: Positive $325 million
- Fiscal 2020: Negative $415 million
- Fiscal 2021: Positive $124 million
- Fiscal 2022: Negative $434 million
- Fiscal 2023: Positive $108 million
- Fiscal 2024: Negative $204 million
- 3 Qtrs. Fiscal 2024: Negative
- 3 Qtrs. Fiscal 2025: Negative $16.6 million
Its improved operating cash flow in the first nine months of the fiscal year (negative $16.6 million) vs. nine months last fiscal year (negative $192.7 million) was driven by:
- $0 net loss vs.$(56) million
- Lower inventories by $159 million
- Higher accounts payable by $73 million
Lower inventories and higher accounts payable can only go on for so long.
Free cash flows are operating cash flows minus capital expenditures.
- Fiscal 2017: Positive $394 million
- Fiscal 2018: Positive $322 million
- Fiscal 2019: Positive $231 million
- Fiscal 2020: Negative $493 million
- Fiscal 2021: Positive $64 million
- Fiscal 2022: Negative $496 million
- Fiscal 2023: Positive $52 million
- Fiscal 2024: Negative $239 million
- 3 Qtrs. Fiscal 2025: Negative $29 million
Significantly strengthened its balance sheet
In 2024 the company sold shares on three different occasions. From May to September, it raised approximately $3.45 billion by selling 140 million shares for an average price of $24.64.
It increased its cash and marketable securities from $1.2 billion at the end of January to over $4.6 billion. The company has essentially no debt at $20.5 million and its net cash to market cap is 34%. While the company is losing money on a cash flow basis, there is more than sufficient cash to cover any losses.
Operating and net income was created by interest income
In the fiscal third quarter GameStop generated $20.8 million and $17.4 million in income before taxes and net income, respectively, which translated to $0.04 in EPS vs. expectations of a loss of $(0.03).
However, with the company raising about $3.45 billion by selling shares its interest income in the quarter was $54.2 million vs. $12.9 million a year ago or an increase of $41.3 million. The operating loss was $33.4 million vs. a loss of $14.7 million a year ago.
Without the extra interest income, the company’s EPS result would have been a loss of $(0.10) vs. a loss of a penny a year ago.
With interest rates moving a bit downwards the benefit of the extra cash should diminish.
Valuation is a bit expensive
GameStop’s valuation is on the expensive side versus the past three years. With a market cap of $13.5 billion and fiscal 2025 revenue of just over $4 billion its market cap to revenue ratio is 3.4x.
However, with 34% of its market cap in net cash when you subtract the $4.6 billion its enterprise value to revenue ratio is 2.2x. The prior three years at end of the fiscal years Market Cap to Revenue ranged from 0.8x to 1.3x
So, shares are expensive but not extremely expensive.
Chart shows a bit over-bought condition
Relative Strength Index or RSI of 60.25 is on the over-bought side.
Read the full article here
