The video game retailer is shaking things up again to turn things around. Jim Stop (GME 0.90%) It is struggling to regain its footing amid falling revenue and a broader shift to digital game sales.
Two recent announcements address very different aspects of GameStop as an investment. The company has appointed Diana Saadeh-Gage as Chief Financial Officer effective July 7, and will do a 4-for-1 stock split over the next several weeks. GameStop stock soared during the 2021 stock meme frenzy. Since then, GameStop stock is down 62% from its all-time high. These latest moves have everyone talking about GameStop again. Let’s think about what this could mean for investors.
GameStop replaces the CFO effective immediately
Replacing the chief financial officer appears to be an odd move given that one of the things the company has done so well during the pandemic is to improve its financial position. As of April 30, GameStop had $1.1 billion in cash and cash equivalents with only $36 million in long-term debt. Management has done a masterful job of taking advantage of the meme-share madness to sell their shares at inflated prices and use the cash to pay off debts.
There may have been an area of contention as the company aims to switch to other markets such as non-fungible tokens (NFTs) and blockchain games. GameStop’s Revenue is declining steadily over the past decade, as the traditional game retailer has been late to adapt to the shift in players’ transition to digital purchases. GameStop has lost money in the bottom line for four consecutive years and five of the last ten years.
In its most recent quarter (ending April 30), GameStop reported revenue of $1.4 billion and a net loss of $158 million. While revenue was barely up from $1.3 billion in the same quarter a year earlier, the net loss was more than double the $67 million. With its underlying prospects not improving, GameStop is trying to boost investor enthusiasm with a stock split.
GameStop announces 4 for 1 stock split
GameStop’s 4-for-1 stock split will go into effect on July 22, when the stock will trade on a split-rate basis. Note, however, that a stock split does nothing to change the company’s performance or ownership ratios. If you owned 1% of the company before the stock split, you would own 1% of it after the split.
All a stock split does is split your stock into smaller parts. If 1% is split into 10 parts before the 4 for 1 stock split, it will be cut into 40 pieces afterwards. It’s the exact aggregate but cut into smaller pieces.
What these moves mean for GameStop investors
In general, it will take a great deal of effort to stimulate growth in GameStop. The good news is that it has a good balance sheet that can withstand several more quarters of losses in the bottom line. But in the end, the company has to find a way to stop losing money. Otherwise, even a billion dollars can drop to zero quickly. needless to say, Investors should stay away from GameStop stock Until she proves her ability to turn things around.
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