GameStop (GME) Stock: Earnings Tuesday Could Make or Break the Rally

TLDR

• GameStop releases fiscal Q3 earnings Tuesday after market close with Wall Street forecasting $987.4 million revenue
• Analysts predict $0.20 earnings per share versus $0.06 last year, continuing the retailer’s profitability streak
• Hardware rose 31% and collectibles jumped 63% in Q2 as the business model evolves away from physical software
• Company holds $8.7 billion cash and $528.6 million in Bitcoin after ending Q2 with strong financial position
• Stock down 25% year-to-date but gained 4.54% in past week ahead of earnings release

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GameStop delivers its fiscal third-quarter results Tuesday after the closing bell. Analysts expect the video game retailer to report $987.4 million in revenue, a 15% jump from last year.

GameStop Corp., GME

The earnings forecast stands at $0.20 per share. That represents more than triple the $0.06 posted in Q3 2024.

Trading Activity Points to Volatility

Options pricing suggests traders expect a 9.51% move in either direction following the announcement. This falls slightly below GameStop’s average post-earnings swing of 10.4% over the past three quarters.

The stock climbed 4.54% during the past five trading days. However, shares remain down 25% for the year and 16% over the past twelve months.

GameStop has consistently beaten earnings estimates recently. The company delivered quarterly profit beats of 61% or higher throughout the past year.

Revenue Mix Transforms Operations

The retailer’s business has shifted dramatically from its traditional model. Hardware sales surged 31% in Q2, driven largely by Nintendo’s Switch 2 console debut in June.

Collectibles now represent the second-biggest revenue category. This segment soared 63% higher during the second quarter.

Software sales paint a contrasting picture. The category plunged 27% in Q2 and now accounts for less than 16% of total revenue.

Digital downloads and streaming services have disrupted the physical media market. Game publishers increasingly bypass retailers to reach consumers directly.

GameStop posted $972.2 million in Q2 revenue, crushing Wall Street’s $900 million estimate. The company has strung together six consecutive quarters of double-digit growth.

This positive trend follows a difficult stretch where net sales declined in six of the past seven fiscal years. Total revenue sits 59% below the 2015 peak.

Financial Strength Builds

GameStop finished Q2 with $8.7 billion in cash, up from $4.2 billion one year earlier. The company also maintains Bitcoin holdings valued at $528.6 million.

The retailer trades at a P/E ratio of 23 based on current year earnings projections. This marks the third straight profitable year for GameStop, a streak not seen since fiscal 2017.

More importantly, the company is positioned for back-to-back years of earnings growth. GameStop last achieved this milestone in fiscal 2015.

Gross margins contracted in Q2 as lower-margin hardware sales gained share. But overall profitability expanded as revenue volume increased.

Wall Street projects 15% revenue growth for the holiday quarter ending in early February. These forecasts follow declines of 29%, 31%, and 20% in the final three quarters of fiscal 2024.

GameStop has missed earnings estimates in just two of the past nine quarters. Investors will watch Tuesday’s report for confirmation that the turnaround continues gaining traction.

The company ended Q2 with strong hardware and accessories performance while navigating the shift away from physical software sales.

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