GameStop (NYSE: GME) surprised the markets with the announcement of an actual - no, really - profit in its Q4 results. This has led to a 48% at pixel time jump in the stock and over 50% at moments. The lesson we might take from this is that the meme stock investors - those blowing their stimulus checks on a bit of online gambling if we're to be unkind about it - might actually have had a point.
It is a bit of a surprise to find a physical world retailer of something so obviously online as video games being able to come back and make that profit. But then we are also seeing something similar happening in books - Barnes and Noble is expanding again, independent bookshops are doing better and so on.
Gamestop stock price from NASDAQ
The actual profit wasn't all that huge, $48 million or so, but that well beats the previous loss of $147 million or so. It's also true that the profit was almost all about an unexpected - by analysts - increase in revenue. Revenue came in at $2.23 billion in the period against an expected $2.17 billion. That increase in revenue is near entirely matched by he difference between expected profits and actual profits.
That is, Gamestop didn't reduce costs - not much at least - by more than expectations but did increase sales by more than expectations. The net difference really is almost the entire difference between the expected loss of 16 cents per share and the reported profit of 16 cents per share. Obviously we'd like more evidence that management is able to reduce costs as well but we'll all take a profit over a loss anytime.
The real issue we should take away from this though is that meme stock status can be - note only can be - more than just a flash in the pan. What really happened here is that the short squeeze on GameStop allowed a rebuild of the capital base. With a stronger capital base management was able to revitalise the business - how ever strange that would have sounded back those couple of years when the stock was being so heavily shorted.
