GameStop Corp. shares fell smartly on Friday morning despite Wall Street backing the firm after an earnings report it revealed on Thursday afternoon. Michael Pachter of Wedbush raised his price target on the firm $55.00, up from $52, and said that it “delivered a strong quarter driven by its dominant next-gen market share, pre-owned strength, mobile growth, and collectibles.”
Wall Street doesn’t seem to be on board with that story on Friday morning. At time of writing, right after the market opened in New York, shares in GameStop were selling for $43.31, down 6.26 percent for the day so far.
GameStop Corp. earnings bring raft of selling
GameStop Corp. beat Wall Street on both sales and profit in the report it issued on Thursday afternoon. The firm showed earnings per share of 31 cents, ahead of the 25 cents that Wall Street was looking for. Sales came in at $1.76B, ahead of the $1.74B that Wall Street forecasted.
Benchmark saw the results as less than Stellar. Mike Hickey from the research firm lowered his rating to Sell, and said that “All segments except for “Other” missed our sales forecast, fiscal Q3’15 guidance disappointed, and the Company did not pass through profit upside.”
Hickey’s price target of $29.76 seems to be having more of an effect on Friday morning that Mr. Pachter’s $55. Colin Sebastian of Baird joined Mr. Pachter with a bullish response to the Q2 results. He has an Outperform rating on the firm’s shares, and a price target of $54.
Mr. Sebastian says that “GameStop reported solid Q2 results, with new store formats and categories helping to smooth performance in a seasonally slower period for video games.”
GameStop looks for diversified growth
The big problem that Mr. Hickey seems to have with the firm concerns the pace of that diversification. He said, in his report on the firm’s earnings, that “the Company’s core business model, the physical distribution of hardware, software and used product through a traditional retail network, will be increasingly displaced from growing consumer adoption of digital / streaming / subscription content service channels and the competitive pressure from mobile platforms, an ecosystem we anticipate will extend to the living room.”
Baird takes a different view. Mr. Sebastian wrote that “Management continues to execute well on diversification efforts.”
Michael Olsonof Piper Jaffray gave GameStop its strongest post-earnings price boost. He put a price target of $57 on the shares and said that the firm’s strong business should continue, despite the perceived slow down in physical game sales.
It’s clear that the market, nervous after a week of sharp trading, is punishing GameStop but, given the upgrades from more than one Wall Street research house, it’s not clear why.