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Key takeaways
- GameStop stock went up after the earnings report for the second quarter was released, despite the company having its sixth consecutive quarter with a loss.
- Amazon and Best Buy stocks have also struggled throughout 2022 as consumer spending on discretionary items is impacted by rising inflation.
- GameStop announced a new partnership with FTX, a cryptocurrency exchange.
GameStop benefited from the meme stock rallies that swept the stock market over the last few years. However, many analysts are still concerned about the company's fundamentals. We can’t ignore financial reports when making investment decisions, since, as savvy investors, we want to ensure earnings and growth are on track.
Unfortunately, competitors of GameStop aren’t performing much better lately either. Companies like Amazon and Best Buy are also dealing with consumer spending decreases, growing inflation and uncertainty about the economy's future.
As investors fear that a recession announcement is pending, let’s compare GameStop stock to Best Buy and Amazon to see how these companies shape up. How serious of a competitor is GameStop? Let’s take a closer look.
What’s happening with GameStop stock?
Even though 2022 has shown us these meme stock movements may stick around, the financials of GameStop have investors concerned about what’s next for the company. With rising inflation, there’s uncertainty in the stock market as to how consumers will react.
We observed that many investors were able to profit from GameStop stock last year due to the meme rallies, but it appears that the fun times are over. GameStop is in a dire situation, having lost $400 million from April 2021 to April 2022, and the company needs to turn business around. With under $1 billion in cash on hand, the company needs to figure out how to stop burning cash immediately, or they risk finding themselves in serious financial trouble.
GameStop recently went through a 4-for-1 stock split and introduced an NFT marketplace, in hopes of increasing the share price. Unfortunately, both moves didn’t progress the company as management hoped they would. It has been revealed that the GameStop NFT marketplace is bringing in less than $4,000 in daily revenue, clearly much lower than what the company had hoped for.
Why is GameStop stock going up?
GameStop announced its second-quarter earnings report on September 7, 2022. Sales declined for the quarter by 4% to $1.14 billion. Losses grew to $108.7 million, up from the previous quarter. This is the sixth consecutive quarter where the video game retailer had to announce a loss.
However, it’s noteworthy that GameStop stock went up after these results came in. The GME stock closed at $24.04, then opened at $25.00, and was up as much as 10% from the previous close on the morning of September 8th. This naturally leads us to an important question.
Why is GameStop stock going up?
It’s difficult to say with certainty why any meme stock goes up. Such company’s financial results are often disconnected from the stock price because of the artificial boosts their stocks receive from social media-fueled rallies.
GameStop announced that inventory totaled $734.8 million at the end of the quarter, an impressive figure considering that many retailers have struggled with supply chain issues. According to the company, this increase in merchandise was intentional as they wanted to keep up with customer demand.
If consumer demand does increase in the coming months, GameStop should be able to match it with supply.
The company ended the quarter with $908.9 million in cash and equivalents. This is down from the billion dollars in cash the prior quarter. While the company seems to be burning through cash, the upside is that they have plenty of runway left to grow their business with the cash they currently have. Investors are just concerned about the rate the company is spending money without turning a profit.
A new deal was also announced with FTX, a crypto exchange where users can buy and sell cryptocurrency and NFTs. This partnership makes sense to many since investors who believe in meme stocks will also likely be cryptocurrency supporters. This could signify that the company is embracing its image as a meme stock. Intrigued? It also appears that investors are bullish about this announcement as the company evolves from a traditional brick-and-mortar retailer to an e-commerce brand with digital products.
How is Amazon stock performing?
2022 hasn’t been kind to many stocks, even an online-retail industry leader like Amazon. Amazon’s CEO recently announced that the company had to scale back on hiring since the pandemic boom led to over-expansion.
Amazon’s stock has been down more than 25% at times since the beginning of 2022. The company has a 52-week high of $188.11 and a low point of $101.26.
Amazon reported $121.234 billion in revenue earnings, a 7% increase over the last year. However, despite the stronger sales, the company still reported a net loss of $2 billion, making it the second quarter with a loss. Take a look at our recent article comparing Amazon vs Walmart.
It’s important to mention that Amazon Web Services (AWS), which provides cloud computing services, has been a huge profit maker for Amazon. AWS brought nearly $20 billion in revenue, with an operating profit of $5.7 billion for the second quarter.
What’s happening with Best Buy stock?
Best Buy stock hit an all-time high in November of 2021 when shares peaked at $134.11. The company saw growth during lockdowns as consumers were spending money to stay entertained. Before the pandemic, Best Buy streamlined its inventory systems, improved employee training, grew its e-commerce business and leased out floor space to major partners.
Unfortunately, Best Buy stock has struggled in 2022 as inflation rises and consumer spending on discretionary items decreases. Many analysts fear Best Buy stock could be stuck in the mud as the company faces a cyclical slowdown due to the current economic conditions.
Many media analysts are calling the Best Buy stock a sell as they’re very bearish on the future of the company. The experts are quick to point out that comparable sales dropped 12.1% from a year ago since consumers are tightening the purse strings when it comes to big-ticket electronic purchases. While it’s difficult to speculate how consumers will spend during the holiday season this year, it’s looking bleak. We just have to wait and see how Best Buy will perform.
So, can GameStop stand up to Best Buy Stock and Amazon?
Except for a vocal minority, it appears that Best Buy isn’t doing so well with analysts, most of whom call it a sell. Amazon, on the other hand, is still the second largest company in sales in the US (only trailing Walmart) though it’s difficult to say if investors could see any growth with the stock. GameStop seems to have impressed investors with its new FTX partnership as the company focuses more on digital collectibles and cryptocurrency.
It will be interesting to see how these three companies fare in the third quarter of 2022 as experts fear that a recession is pending. It can’t be denied that discretionary spending tends to decrease during a recession. However, economists still haven’t announced an official recession, and there’s even the possibility that the US economy could narrowly avoid one.
It’s clear that all of these companies saw growth during the pandemic when people were stuck at home and wanting to be entertained. Pandemic boredom also came with stimulus money that led to increased discretionary spending.
Will consumers still be willing to spend money on electronics and non-essential staples during a recession? Will the economy bounce back in the fourth quarter of 2022? Will the labor market stay relatively strong and prop up the economy?
These are questions that we have to be patient with.
Amazon continues to dominate the e-commerce space and it’s difficult for competitors to keep up with the economies of scale that the company enjoys. Amazon has invested billions of dollars in logistics, warehousing, web servers and more to become an e-commerce giant. GameStop once mentioned wanting to be the “Amazon of gaming,” but the jury is still out on whether that will come true.
As of closing on September 9th, here’s where the three stocks stand:
- GameStop closed at $28.92.
- Amazon closed at $133.27.
- Best Buy closed at $76.24.
How should you be investing your money?
It’s difficult to decide which company to invest in during the best of times. During a period of uncertainty, it’s even riskier to decide where to put your money. There are so many variables at play with the economy as The Fed raises interest rates to fight inflation. If inflation decreases and the labor market stays strong, these three companies could benefit from an economic bounce back. However, we have to remain patient as we see how the economic cycle plays out in the last two quarters of the year. We also have to keep in mind that when good stocks do go down in value, this presents a good opportunity to buy at a reduced price.
As an investor, you must do whatever you can to protect your money during times of uncertainty. There are ways to become more defensive during this time of high inflation. Take a look at Q.ai’s Inflation Kit and protect your investments from dropping in value.
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