Shares of GameStop (GME) fell 7% on Thursday after the video game retailer reported disappointing financial results for its fiscal fourth quarter.
The company posted an adjusted operating loss of $160.7 million compared to a profit of $28.9 million a year ago. The quarter was supposed to be strong as it includes the holiday shopping season when GameStop has historically made money. But instead, earnings results shed light on aggressive spending on strategic initiatives such as NFT swap plans.
More than a year after GameStop hit the headlines as a fast-growing meme, Wedbush analyst Michael Pachter told Yahoo Finance Live that the company is now “digging a hole they’ll never get out of.”
“They lost $140 million for the holiday quarter, which is a shame,” Pachter said. “If they lost that much during the holiday quarter, they will probably lose a couple of hundred million dollars. [dollars] a quarter ahead if they continue like this.”
Customers enter the GameStop store on December 8, 2021 in San Rafael, California. (Photo by Justin Sullivan/Getty Images)
During the earnings announcement, the video game retailer unveiled plans to launch a non-fungible token (NFT) marketplace by the end of July.
Pachter said he did not see how the NFT exchange would work.
He added that launching an NFT exchange to compete with existing ones like Coinbase is “a solution in search of a problem.”
“We have a place where you can buy NFTs if they are available. And these other exchanges don’t sell much, if at all. [GameStop is] going to get inventory. I don’t think there will be NFTs specifically designed to be traded at GameStop,” he added. “I don’t think the creators of the NFT would want to hand over some of the action to GameStop. So I just don’t see it. I mean, I think it’s a non-starter.”
Meme fund frenzy subsides
Ever since the meme stock frenzy occurred in January 2021, when stock prices for companies like GameStop hit all-time highs, market valuations have declined to more accurately reflect company earnings, liquidity, corporate governance and dilutive events.
The story goes on
In addition, GameStop’s short squeeze has plummeted to pre-2021 levels. Short interest in GameStop is only 18% of the shares outstanding compared to 140% of the shares sold at the start of 2021.
GameStop’s share price performance in the wake of its latest earnings report further ties it to the retailer’s fundamentals, which are likely to continue until the company proves to investors that its long-term vision can be sustainably profitable.
Bradley Smith is a presenter at Yahoo Finance. Follow him on Twitter @thebradsmith.
Read the latest financial and business news from Yahoo Finance
Follow Yahoo Finance at Twitter, facebook, Instagram, flipboard, LinkedInas well as YouTube