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Why GameStop Stock Crashed Hard Today

By Rich Duprey – Updated Jun 11, 2020 at 4:27PM

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The market had time to digest its earnings report from two days ago.

What happened

Shares of GameStop (GME 5.72%) dropped 14% on Thursday as the market indexes fell hard over fears of what a second wave of coronavirus cases could do to the economy.

So what

GameStop reported earnings that came up short on analyst revenue and profit forecasts as the COVID-19 pandemic forced its stores to close. The video game retailer can't afford to go through another round of lockdowns.

Man playing video game holding his head

Image source: Getty Images.

As its stores began to reopen in the current quarter, comparable-store sales improved to a 4% decline in May compared with the 17% drop seen in the first quarter. E-commerce growth also surged 1,400% higher, in line with data from Earnest Research, which said GameStop's online sales soared 1,500% between March 1 and April 10.

Now what

GameStop has a net cash position of just $18 million to last until the game-console upgrade cycle kicks in this fall. The company is essentially betting all its chips that new consoles from Microsoft and Sony will renew sales growth, and though there is reason to think this will occur, it can't afford a new COVID-19 outbreak to wreck the economy again.

Investors may be nervous that after having made it through the first downdraft, it might not survive a second.

 

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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Stocks Mentioned

GameStop Corp. Stock Quote
GameStop Corp.
GME
$25.88 (5.72%) $1.40
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$235.14 (-0.97%) $-2.31
Sony Corporation Stock Quote
Sony Corporation
SONY
$65.80 (-1.35%) $0.90

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