With a roster of new executives on deck, video game retailer GameStop (GME) is gearing up for a turnaround. But for investors, that new direction is as yet unclear.
Shares of GameStop sank by 27% on Thursday, logging their worst day since March even after the company reported first-quarter results that topped estimates. Sales grew by a better-than-expected 25% to $1.28 billion, while adjusted losses narrowed to 45 cents per share, compared to losses of $1.61 per share during the same period last year.
The release coincided with the company’s announcements that it appointed a new chief executive officer and chief financial officer, planned to sell more shares and was being investigated by the U.S. Security and Exchange Commission over trading activity. Earlier Wednesday, GameStop shareholders also voted Ryan Cohen, co-founder of the e-commerce platform Chewy (CHWY), as chairman of the board.
But amid the flurry of updates, GameStop left a glaring omission — namely, its plan to transform the company into a formidable retail competitor, according to at least one Wall Street analyst.
“We don’t know where GameStop is headed but it’s clear that they intend to remake themselves as an Amazon-lite,” Wedbush analyst Michael Pachter told Yahoo Finance on Thursday. “And Ryan Cohen promised investors a strategy back in mid-January. It’s been nearly five months and we haven’t seen that yet.”
“I think the pullback in the stock is, investors are getting tired of waiting for him to tell us what the strategy is. I’m getting tired waiting,” he added. “And there’s no chance I’m taking my target up unless he shows me the path to massive profit growth. I just don’t see it.”
Pachter has an Underperform recommendation on shares of GameStop with a $50 12-month price target, representing downside of 83% from its closing prices on Wednesday. In a note following earnings results, Pachter said the company “was positioned to be a primary beneficiary of the new console launches,” but that recent social media-fueled trading “spiked the share price to levels that are completely disconnected from the fundamentals of the business.”
But in terms of the company’s stock falling on Thursday, GameStop’s new C-Suite appointments may also have failed to impress some retail investors looking for executives from burgeoning industries, Pachter added. GameStop added to a litany of recent hires from Amazon (AMZN), bringing on Matt Furlong, former head of Amazon’s Australia business, as CEO, and Mike Recupero, former chief financial officer of the e-commerce giant’s North American consumer business, as CFO.
GameStop said the announcements “reflect the refreshed Board’s focus on building a technology company and investing in growth.”
“Possibly the Reddit raiders, the retail investors, wanted to see somebody from Coinbase, or somebody from some cannabis supplier — something transformational,” Pachter said. “And we got more of the same.”
“As a fundamental research analyst, I am A-OK with hiring people from Amazon, especially from the e-commerce division,” he added. “These are good people, they’re going to be competent executives.”