Signage is displayed at a GameStop Corp. store in Oswego, Illinois, on Monday, April 1, 2019. (Photographer: Daniel Acker/Bloomberg)
© 2019 Bloomberg Finance LP
GameStop Inc (NYSE:GME) recently posted its Q4 FY 2018 results, which were below our estimates, as the pre-owned video games sales plummeted. Below we outline some of the key takeaways from the company’s earnings, and our estimates for 2019.
How Did GameStop Perform Over Q4?
- GameStop’s Q4 revenue stood at $3 billion, down 13% year-over-year.
- Pre-owned video games sales were down 21% while new video game hardware and software sales declined by 10% and 8%, respectively.
- The company divested its Spring Mobile business last year, which also impacted the y-o-y growth.
- Adjusted net income stood at $164 million for the quarter, compared to $205 million in Q4 FY’17
- The company saw strong 19% growth in the video game accessories business, which has been trending well of late.
- The overall gross margins narrowed during the quarter, due to lower pre-owned video games sales, which offers higher margins.
What Impacted The Sales In 2018?
- New consoles, such as Nintendo Switch, launched in 2017, spurred video games hardware sales for GameStop.
- The sales have cooled in subsequent years, thereby impacting the company’s new video game hardware revenues.
- Lower hardware sales have impacted the new video game software sales.
- Fewer title releases in 2018 when compared to 2017 have also impacted the sales.
- Video game accessories sales growth was led by higher demand for audio-related and battle royale (gaming genre) related accessories.
What’s The Outlook For GameStop For Fiscal 2019?
- Expect revenues to decline 2% to $8.1 billion in fiscal 2019.
- Continued growth in video game accessories, and collectibles should offset some of the declines expected in other segments.
- Margins could see further pressure with lower mix of pre-owned video games sales.
- Lower revenues and margins will result in adjusted earnings of $1.08 per share in fiscal 2019, as compared to $2.70 per share in fiscal 2018, in our view.
- Our price estimate of $12 for GameStop is based on a 11x forward price to earnings multiple.
