[Ed. Note: Physical video game sales are a dying business model located in shopping malls which, themselves, are a dying business model. It’s fascinating how modern investing seems to gravitate towards that which is intrinsically worthless. While you’re at it, grab some crypto, a few non-fungible tokens, and maybe some shares in Hertz.]
by David Kranzler
Investment Research Dynamics
GME reported its fiscal year Q4 and full-year numbers this past week. Q4 was a disaster for the Company. Operating earnings were trounced 75%% YoY for the quarter from $75.2 million last year down to $18.8 million. After subtracting interest expense, which rose in 2020, pre-tax net income plunged 84.5%. Across the board, the Company badly missed consensus estimates for revenues, gross margin, operating profit (87% miss) and net income.
Some of you may have seen the headline report that GME earned $1.23 per share in Q4 2020 vs 38 cents in Q4/19. But the net income number in 2020 includes a $69.7 million non-cash GAAP tax “benefit” whereas in 2019 the GAAP non-cash tax expense was $43.8 million. That’s why it’s “cleaner” to analyze operating and pre-tax numbers. While hardware sales (game consoles) increased 20.5% YoY for the quarter, software sales plunged 26%. Game consoles are only marginally profitable. The “juice” in the business is with software sales.