Meme stock GameStop soars 35% after turning profit

GameStop shares soared 35% in early Wednesday trading after the video game retailer, which was at the center of the 2021 meme stock craze, reported its first profit in two years.

The Texas-based chain posted an adjusted profit of $48.2 million, or 16 cents per share, for the fourth quarter, compared to a loss of $147.5 million, or 47 cents per share, a year ago.

The company, which counts billionaire investor Ryan Cohen as chairman and majority shareholder, said that its costs declined in the fourth quarter by 16%.

Fourth-quarter revenue fell 1.2% to $2.23 billion.

GameStop’s surprising results also boosted the share price of other meme stocks including AMC Entertainment, whose shares rose 7%, and Bed Bath & Beyond, which rose 7%.

Bed Bath & Beyond is in the process of closing hundreds of stores nationwide as it seeks to stave off bankruptcy.

The high interest rate regime of the past year has roiled stock markets, with speculative areas of the market such as meme stocks taking a severe blow.

Meme stocks are securities whose values were artificially inflated by Reddit internet chat groups such as WallStreetBets.

Retail traders pumped up the value of meme stocks in order to squeeze sophisticated traders who “shorted” the stock — or bet that the company would fail.

In January 2021, the meme stock craze sent shares of GameStop soaring by some 1,800% — inflicting billions of dollars on losses on hedge funds and others who shorted the stock.

GameStop shares slid 25% in the past 12 months, compared to a 10.3% slide in the S&P 500.

Matt Furlong, the company’s CEO, said in an earnings call on Tuesday that the firm will look to keep costs in check.

“Looking ahead, we’re aggressively focused on year-over-year profitability improvement while still pursuing pragmatic long-term growth,” Furlong said.

“We’re taking a number of steps in fiscal year 2023 to improve our efficiency and support these overarching goals.”

Furlong said those goals “include continuing to cut excess costs, including in Europe, where we have already initiated exits and partial winds downs in certain countries.”

He added that “we expect to continue to incur transformation charges in the first quarter of 2023, as we aggressively cut costs.”

Analysts say that while cutting costs is a good start, the GameStop will have to boost sales in order to demonstrate sustainable long-term growth.

“The early signs on costs are encouraging, and expect profitability again in Q4 2023, but want to see the leverage in the non-holiday quarters before modeling full-year positive EBITDA (earnings before interest, taxes, depreciation and amortization),” said Jefferies analyst Andrew Uerkwitz.

“Revenue headwinds in the core business remain.”