GameStop Analyst: Console Sales 'Continue To Look Light'

GameStop Corp. (NYSE: GME) shares have been on a wild ride in recent weeks thanks in large part to the Reddit WallStreetBets community. While the stock has been to the moon and back thanks to a battle between retail traders and hedge funds, GameStop’s underlying business continues to struggle.

What Happened? On Friday, Bank of America analyst Curtis Nagle said next-generation video game console sales dropped more than expected in January, which is bad news for GameStop.

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NPD reported U.S. hardware sales were up 147% in the month of January, while software sales were up 26%. Overall, hardware and software sales were up 30% for the fiscal fourth quarter ending in January.

“Relative to the start of the last cycle, so far PlayStation/Xbox units are 10% versus this point during the last cycle,” Nagle wrote in a note. He expects deep supply constraints will continue to weigh on console sales for the time being.

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While technical market dynamics have controlled GameStop’s trading action in recent weeks, Nagle said fundamentals will eventually matter again, and those fundamentals paint an ugly picture.

“Fundamentals remain very challenged and in our view large structural pressures centered around digital disintermediation will be very difficult to offset and will likely worsen under the current console cycle,” Nagle said.

Bank of America has an Underperform rating and $10 price target for GameStop.

Benzinga’s Take: GameStop and other mall retailers were crushed by the pandemic, but GameStop’s business has been struggling for years even prior to 2020. GameStop’s revenue peaked back in 2012 and had fallen to just $8.25 billion by 2019.

Photo credit: Oxiq, WikiMedia Commons