Analysts Debate If GameStop Can Power Back Up

"Looking out, not only is it difficult to see how results will improve in a new cycle (after all, the last cycle didn't seem to stimulate enough software/pre-owned), but what happens between now and then is more concerning," the analyst wrote.

GameStop Could Be 'Back On Track' Next Year

GameStop fell well short of expectations, but Pachter said that can be attributed to broader industry trends. Specifically, NPD data showed a 28% decline in hardware and software sales ahead of the launch of new Sony SNE PlayStation and Microsoft MSFT Xbox consoles in late 2020. Management's revised outlook also reflects this weak near-term demand ahead of the gaming console launch.

Looking forward, Pachter said GameStop can right-size its store base of 5,000 units to better reflect lower demand and the company can better manage inventory and operating expenses to remain profitable "for the foreseeable future." This will allow the company to start addressing its $419 million debt balance at $40 million per quarter and repay or refinance its debt balance before it is due in March 2021. At that point, the "short thesis begins to deteriorate."

Price Action

GameStop's stock traded lower by 19% to $5.28 per share at time of publication.

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