It was a photo finish, but for only the second time in the last three years, shares of GameStop (GME 3.46%) moved higher the day after posting fresh financial results. The leading video game retailer's stock closed just 0.2% higher on Thursday, but a win is still a win.
It was a mixed report. Net sales beat expectations, but it also posted a larger loss than analysts were targeting. Thursday's trading was still a surprising comeback story, as the shares initially opened 9.4% lower following the Wednesday afternoon report. Take a victory lap, GameStop.
Thursday's narrowly positive close might not seem like much, but it ends a streak of four consecutive reports that triggered double-digit percentage declines the following day. The average decline for the four previous quarters was a brutal 23.9%.
- Nov. 29, 2018: down 6.7% the next day
- April 2, 2019: down 4.7%
- June 4, 2019: down 35.6%
- Sept. 10, 2019: down 9.8%
- Dec. 10, 2019: down 15.1%
- March 26, 2020: down 4.3%
- June 9, 2020: up 2.2%
- Sept. 9, 2020: down 15.2%
- Dec. 8, 2020: down 19.4%
- March 23, 2021: down 33.7%
- Sept. 8, 2021: up 0.2%
It's a remarkable run for a stock that has been crushing the market in that time. As great as GameStop has been performing (nearly a 14-bagger over the past three years), it has taken a step back the day after posting quarterly results in 10 of the past 12 quarters.
The sell-offs following earnings news have been substantial. In fact, the stock's two least-volatile days, with gains of 2.2% and now 0.2%, were the only two quarters in which the shares moved higher. The average move over the past 12 quarters is now clocking in at a decline of 11.8%.
GameStop is still trading slightly lower for the holiday-abridged week heading into Friday's trading. But the streak of negative returns the day immediately following a financial update has been snapped after a huge surge throughout the day to overcome the market's initial disappointment with the results.
The move also ends the growingly pessimistic momentum. The 33.7% and 19.4% declines after the two previous reports, respectively, were two of the three worst declines over the past three years.
Where GameStop goes from here is the real question. Unlike with most video game stocks, which are at the mercy of individual games being put out by that particular publisher or developer, owning GameStop is a bet on the industry. It's a wager that has historically been on the sale of physical hardware and software sales as well as the higher-margin resale market.
The industry is changing, of course. Publishers and console makers are now selling directly to consumers, bypassing the retail middlemen and the creation of physical media that can be resold. GameStop has shuffled its executive ranks and cleaned up its balance sheet to have fresh eyes and the money to bankroll its transformation. The challenges remain, but the opportunity is also there.
GameStop now gets to move on to the next level, and three months from now, it will have to prove that Thursday's uptick wasn't a fluke.