That scenario is currently playing out at GameStop , and here’s what the numbers are saying. In terms of cost improvements, the company “is doing things the old fashion way—focusing on preservation of cash by cutting costs,” Jefferies analysts wrote in a Wednesday report. They rate shares at Hold with a price target of $20.
And indeed, on Wednesday the videogame company posted a narrower-than-expected second-quarter loss, driven by a cutback on expenses. Looking at the financial results seems to indicate the company is continuing on its path, analysts noted, minus movement toward NFTs, which it dabbled in last summer. Wedbush analysts also praised cost discipline at the company but noted multiple challenges to growth. These include a pivot of game sales from physical to digital, a decline in hardware sales, and the absence of a clear strategy to jump into new categories that have the potential to spark growth. They maintained their Underperform rating, inched their estimates higher, and trimmed their price target to $6 from $6.20.
The big issue is where GameStop goes from here. The company has about $1.2 billion in cash and can stomach $100 million annual losses for at least a decade, Wedbush analysts explained, but if revenue declines by $150 million to $200 million a year, “it may have trouble trimming costs fast enough to stem the growth of its losses,” according to Wedbush.
GameStop didn’t immediately respond to a request for comment, but there is an optimistic way to look at it, too. A lot can change in five years, good and bad. No one could have imagined the whole meme-stock craze, and who knows what comes next?
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