GameStop ‘Burns to the Ground’ and Analysts Fear No Rebound

(Bloomberg) -- GameStop Corp. shares plummeted the most on record to their lowest since 2003 after the video-game retailer reported first-quarter revenue that missed expectations and halted its dividend, the latest red flag for a stock that has already cratered in 2019.

More than just a bad print, analysts seemed to view the results as the worst kind of warning sign. Jefferies wrote that the company’s legacy retail model was “increasingly at odds” with how the gaming industry had evolved toward an online and digital focus, and that it “faces the need for a dramatic pivot, wholesale changes, and aggressive action to remain relevant.”

The stock dropped as much as 36% in its biggest one-day percentage loss since its listing in 2002, according to Bloomberg data. The stock has lost more than two-thirds of its value since a peak earlier this year.

Here’s what analysts are saying about the results:

Benchmark Co., Mike Hickey

Cuts price target from $9 to $5 as the business “burns to the ground.”

The management team “was uninspiring and lacked any coherent articulation of a tangible vision on how to transform the business.”

Valuation has been “nuked.”

“The only impactful transformation we see in GME’s future is the industry’s on-going transition to the digital economy, a viable scenario where GME has little value.”

Sell rating.

Jefferies, Stephanie Wissink

“The fracturing of the model is becoming a greater concern” given weak results “on a number of key measures” and “necessary deep cuts to cost.”

The “vectors of industry change and a legacy retail model are increasingly at odds,” and it will be hard for GameStop to wait for the next cycle.

“GME now faces the need for a dramatic pivot, wholesale changes, and aggressive action to remain relevant.”

Hold rating, price target cut to $8 from $12.

Telsey Advisory Group, Joseph Feldman

Removing the dividend “is likely to lead to a rotation in the investor base and further pressure shares.”

Cuts price target to $6.50 from $10 but affirms market-perform rating.

“The combination of the transformation initiatives, ongoing consumer shift to digital gaming, and current console cycle being in the very late stages are likely to make 2019 a very challenging year.”

Loop Capital Markets, Anthony Chukumba

“The elimination of the quarterly cash dividend sends a worrisome signal that management has lost confidence in the company’s cash flow generation ability.”

Hold rating. Price target cut by $1 to $7.

What Bloomberg Intelligence Says:

GameStop’s “decision to slash its dividend while it works through what’s going to be a tough turnaround is probably the right move -- though may be unnecessary -- to preserve cash as it evaluates new opportunities.”
-- Matthew Kanterman
-- Click here for the research

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Will Daley, Morwenna Coniam

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