The video game retailer is shaking things up again to turn things around. GameStop (GME 2.56%) has been struggling to regain its footing amid declining revenue and the broader shift to digital game sales.
Two recent announcements address very different aspects of GameStop as an investment. The company appointed Diana Saadeh-Jajeh as CFO effective July 7, and it will do a 4-for-1 stock split within the next several weeks. GameStop's stock surged during the meme stock frenzy of 2021. Since then, GameStop has been down 62% off its highs. These latest moves are getting everyone to talk about GameStop again. Let's consider what it could mean for investors.
GameStop replaces its CFO effective immediately
Replacing the CFO seems like an odd move considering that one of the things the company has done exceptionally well during the pandemic is improve its financial condition. As of April 30, GameStop had $1.1 billion in cash and equivalents with just $36 million in long-term debt. Management did a masterful job capitalizing on the meme stock frenzy to sell its shares at inflated prices and use the cash to pay down debt.
Perhaps there was an area of disagreement as the company aims to pivot into other markets such as non-fungible tokens (NFTs) and blockchain gaming. GameStop's revenue has been falling steadily over the last decade as the brick-and-mortar game retailer was late to adapt to the shift in gamers moving to digital purchases. GameStop has lost money on the bottom line for four consecutive years and five out of its last 10 years.
In its most recent quarter (ended April 30), GameStop reported revenue of $1.4 billion and a net loss of $158 million. While revenue was barely up from $1.3 billion in the same quarter in the prior year, the net loss was more than double the $67 million. With its fundamental prospects not improving, GameStop is trying to bolster investor enthusiasm with a stock split.
GameStop announces a 4-for-1 stock split
GameStop's 4-for-1 stock split will go into effect on July 22, when the stock will trade on a split-adjusted basis. Note, however, that a stock split does nothing to change the performance of the company or ownership percentages. If you owned 1% of the company before the stock split, you would own 1% of it after the split.
All a stock split does is slice your shares into smaller pieces. If your 1% was split into 10 parts before a 4-for-1 stock split, it would be sliced into 40 pieces after. It's the exact total but cut into smaller pieces.
What these moves mean for GameStop investors
Overall, it will take significant effort to reinvigorate growth at GameStop. The good news is that it has a healthy balance sheet that can withstand several more quarters of losses on the bottom line. Eventually, however, the company must find a way to stop losing money. Otherwise, even a billion dollars can drop to zero in a hurry. Needless to say, investors should stay away from GameStop stock until it proves it can turn things around.
