GameStop Corp (NYSE:GME) released its mixed second-quarter results after the bell Thursday, confirming reports that it was exploring a buyout.
Wedbush analysts weighed in on its results and just what that acquisition may look like.
The video-game retailer reported a net loss of US$0.24 per share, missing analyst estimates of US$0.08 EPS. However, its revenue of US$1.65bn topped analyst revenue expectations of US$1.62bn.
Shares of GameStop slipped post-results and continued falling nearly 4% to US$15.50 in Friday pre-market trading.
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The retailer’s full-year guidance was reaffirmed due to strong hardware demand, according to Wedbush analysts. Its total sales are expected to decrease between 2% to 6%.
“GameStop is fading, but its demise is not as imminent as many expect,” wrote the analysts, citing the company’s ability to maintain profitability by bringing collectibles and its technology brands business into the mix.
The analysts expect a longer release window for highly-anticipated games ahead of the holidays to boost software sales.
Activision’s Call of Duty: Black Ops 4, Ubisoft’s Assassin’s Creed Odyssey and Take-Two’s Red Dead Redemption 2 will all launch in the third quarter. The release of EA’s Battlefield V has also been delayed until November.
The new Call of Duty alone is expected to sell as many as 3 million physical copies in the US in the month of October while Red Dead Redemption 2 is expected to sell half as many in its first week of sales, according to the analysts.
The early launch of these games will escape the discounting synonymous with Black Friday.Regarding the possible acquisition, the analysts don’t foresee that happening in the near future and suggest the price tag may be too steep for private equity firms.
“While a sale is far from assured, its enterprise value is only $2.2 billion, or around 7x its free cash flow. In our view, this makes the company too expensive for many private equity firms, but it is possible that a purchaser could grow FCF by slashing opex by $100 million or so annually to drive the current valuation closer to 5x,” wrote analysts.
Wedbush maintained its Outperform rating with a price target of US$19.