GameStop (GME) shares fell 7% Thursday after the video game retailer reported lackluster fiscal fourth quarter earnings results.
The company reported 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 a strong one since it includes the busy holiday shopping season when GameStop has historically made money. But instead the earnings results shed light on aggressive spending for strategic initiatives, such as plans for an NFT exchange.
More than a year after GameStop made headlines as a soaring meme stock, Wedbush analyst Michael Pachter told Yahoo Finance Live that the company is now “digging a hole that they’ll never climb out of.”
“They lost $140 million during the holiday quarter, which is pretty embarrassing,” Pachter said. “If they lost that much on the holiday quarter, they’re probably going to lose a couple hundred million [dollars] a quarter going forward if they keep this up.”
During the earnings announcement, the video game retailer unveiled plans to bring its non-fungible token (NFT) marketplace live by the end of July.
Pachter said he doesn’t see how the NFT exchange will work.
Launching an NFT exchange to compete with existing ones like Coinbase is “a solution in search of a problem,” he added.
“We have a place to buy NFTs, if there are any to buy. And those other exchanges aren’t selling many, if any. So I just don’t think [GameStop is] going to get the inventory. I don’t think that there will be NFTs created, specifically to be exchanged on GameStop,” he added. “I don’t think the NFT creators are going to want to give a piece of the action to GameStop. So I just don’t see it. I mean, I think this is a nonstarter.”
Meme stock frenzy wanes
Since the January 2021 meme stock frenzy that saw share prices of companies like GameStop reach all-time highs, market valuations have come down to more closely reflect companies’ earnings, liquidity, corporate governance, and dilutive events.
Additionally, the GameStop short squeeze has receded dramatically to pre-2021 levels. Short interest in GameStop only represents 18% of outstanding shares, compared to 140% of shares shorted in early 2021.
GameStop’s stock price action following its latest earnings results further adheres it to the retailer’s fundamental measurements, which is likely to continue until the company proves to investors that its long-term vision can be sustainably profitable.
Bradley Smith is an anchor at Yahoo Finance. Follow him on Twitter @thebradsmith.