GameStop achieves its first profit in two years, resulting in a significant rise in its stock price.

27 Mar 2023

On the 22nd of March in 2023, at 11:50 in the morning, there was a blog on MoneyWatch.

Following two years of financial difficulty, GameStop has recently announced its first profitable quarter which has resulted in a significant increase in the value of its shares.

At the start of the day's stock market activity, the corporation's shares rose dramatically by 46% to reach $25.70. The retail store, headquartered in Texas, disclosed in a legal document that they earned a net income of $48.2 million for the last quarter of 2020, which ended on December 31st. This is in comparison to their loss of $147.5 million for the same period in the previous year.

During 2021, the value of GameStop's stocks skyrocketed to over $300. This happened thanks to investors who regularly gather on Reddit and other online forums. They teamed up to buy shares in GameStop, which went against what Wall Street had predicted. Various companies and traders labeled the game seller as a lost cause. The retail investors also invested in other meme stocks, like Bed Bath & Beyond, AMC Entertainment, and BlackBerry. The values of these companies also saw significant increases.

Cutting Costs to Buy Time

According to GameStop CEO Matthew Furlong, the enhancements to the company's financial statement are a result of their efforts to revamp their business approach this year. He made this known during a conversation with analysts.

"We changed direction last year to save money, improve our stock management and give more attention to improving how we serve our customers," he explained. "The positive outcome of all these adjustments is clearly demonstrated by our performance this quarter."

Last year, GameStop decreased its staffing through a sequence of layoffs and also shut down certain stores in Europe to save money. This plan will still be implemented, as stated by Furlong.

According to a report by Michael Pachter and Nick McKay, analysts at Wedbush Securities, implementing strategies to reduce costs would aid the retailer to save money and offer more opportunities to search for innovative ways of progressing.

According to them, the reduced expense framework helps decrease the possibility of continual negative financial results. With this in mind, GameStop can depend on its net cash worth of $1.4 billion to carry it through a few more years as its management explores novel strategies to reinvigorate its deteriorating operation.

GameStop has been facing a decrease in sales in the past years because of the shift in the video game industry towards streaming and digital downloads. The company had been facing losses for seven consecutive quarters, until it finally managed to turn a profit in the last quarter.

In the future, GameStop may still encounter great difficulties as the gaming industry changes.

According to Pachter and McKay, the company cannot rely on cutting costs to achieve success in the long run. This is because the sales of the latest hardware will eventually decrease, and physical copies of video games have been declining for several years. Furthermore, the increasing popularity of mobile and subscription options for gaming means that the downward trend in sales is likely to continue.

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