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Taking the Games Out of GameStop

GameStop’s share price slipped 4% in premarket trading Thursday.



Photo:

John Smith/VIEWpress/Getty Images

A videogame retailer without games? The new

GameStop


GME -2.34%

seems to think it is at least plausible.

The retail chain’s fiscal third-quarter results reported late Wednesday showed the company’s third consecutive period of double-digit sales growth. Revenue jumped 29% year over year to about $1.3 billion. That was ahead of the $1.2 billion consensus target of the few Wall Street analysts still willing to cover the meme-addled stock. But merchandise inventory also exploded by 91% from the previous quarter—the biggest sequential jump in more than a decade as the company claimed it was “front-loading investments” to meet increased demand and mitigate supply-chain issues. GameStop’s share price slipped 4% in premarket trading Thursday.

The results gave a further glimpse into the company’s new direction. Hardware and accessories revenue jumped 62% year over year and while collectibles revenue rose 31%. Revenue from game software, by contrast, fell 2% year over year. A reorganization of GameStop’s segment reporting last year makes comparisons with prior periods difficult, but note that new game software alone once comprised more than 42% of the company’s total sales. Now, both new and used software combined make up about a third of revenue.

Heard Stock-Picking Leaderboard

The trend is understandable. A world in which most videogames are sold as digital downloads has less opportunity for a retailer still running more than 4,200 stores at last count. And, while GameStop’s new management team is still unwilling to share much details of its plans—Chief Executive

Matt Furlong

spoke for just seven minutes on Wednesday’s call and again took no questions—the company’s statement made no mention of games at all. It instead called the contribution of brands such as

Samsung Electronics Co.

,

LG Electronics Inc.

and

Razer Inc.

—established names in videogame PCs and peripherals. And Mr. Furlong said the company is “exploring emerging opportunities” in the latest market buzzwords of blockchain, NFTs and “Web 3.0 gaming”—the latter being another term for the metaverse.

But such a move isn’t without risk. GameStop’s unique mix of new and preowned videogame hardware and software historically garnered the company gross margins near 30%—well above the high-teens average for computer and electronics retailers, according to data from S&P Global Market Intelligence. And while the company’s coffers are still flush with more than $1 billion raised through stock sales to its enthusiastic investor base, it is burning cash—more than $306 million in the latest quarter alone.

Colin Sebastian

of Robert W. Baird & Co. said Wednesday that “even some of the faithful may begin to ask questions if cash outflows accelerate next year.”

With GameStop shares down more than half from their high in January, it seems some already are.

The GameStop frenzy put the spotlight on a growing group of investors who seek and share trading information on social media platforms like YouTube and TikTok. Three investors explain how these online communities are helping them chase the market. Photo illustration: Adam Falk/The Wall Street Journal

Write to Dan Gallagher at dan.gallagher@wsj.com

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