- GameStop has been quietly announcing layoffs this week.
- GME stock tanked 8.5% on Tuesday one day ahead of Q3 results.
- Wall Street expects $-0.28 in adjusted EPS on revenue of $1.35 billion.
- NASDAQ down 1.1% due to strong US Dollar in Wednesday premarket.
GameStop (GME), the embattled videogame retailer with the heavily shorted stock, surprised the market on Tuesday with what appears to be a large round of layoffs. Interestingly, GameStop has not independently confirmed the extent of the layoffs, and all news outlets reporting on the event are simply reading the tea leaves from a dozen or so announcements from employees on the LinkedIn social network. The news is fascinating since GameStop is scheduled to deliver third quarter earnings results after the market close on Wednesday. Could these layoffs be related?
GameStop stock is trading up 0.5% in Wednesday's premarket, while the NASDAQ is down 1.1% as a stronger US Dollar makes equities less attractive. AMC stock also dropped 9.4% on Tuesday.
GameStop stock news: Layoffs may signal poor Q3 quarter
GME stock steadily sold off as news of the layoffs trickled from LinkedIn to headlines on Tuesday, and shares ended the day down 8.5% at $23.39 – its lowest price in about one month. At least one laid off GameStop programmer wrote on LinkedIn that it was "another big round of layoffs". Anecdotal evidence suggests that the team developing and operating GameStop's crypto wallet were let go and that members of HR and other professional segments like transportation were dismissed. Since management has thus far been close-lipped about the affair, plenty of analyst questions will revolve about the extent of layoffs so close to the earnings announcement.
It is important to note that when layoffs arrived over the summer for GameStop employees, various levels of management said they were part of a push toward profitability. Those initial layoffs included letting go of Chief Financial Officer Mike Recupero.
“Our focus is on achieving sustained profitability," said CEO Matt Furlong at the time. "This means eliminating excess costs and operating with an intense owner’s mentality.”
Wall Street expects GameStop to report $-0.28 in adjusted earnings per share on sales of $1.35 billion for the third quarter. Though GameStop is thought to be still experiencing losses, that adjusted EPS figure would mean an 80% reduction in per share losses from a year ago. The revenue forecast would see revenue growing just 4% YoY however.
It would make complete sense for the layoffs to be connected to poor results on the earnings front then. Management knows that without breaking even in the near future, GME stock could head back to the $1 to $5 range that it experienced for much of 2020.
GameStop stock forecast
GameStop stock has been drifting within a consolidated price range since early September. Now in its fourth month, the GME price range mostly extends between $23 and $29, though the October 31 rally moved well above the trading range to nearly $35. Though GME stock seemed to collapse somewhat on Tuesday, losing 8.5%, it still remained above $23. Longer-term support sits at $22 and $20 from the March and May lows.
Generally speaking, bulls have had trouble pushing GME stock above the $27 to $28 supply zone. In September they pushed it to $29, but the last few months have seen most rallies peter out between $27 and $28. A roundly positive Q3 could allow GME price action to break out of that resistance zone and move to the recent range high of $35. However, the Accumulation/Distribution line shows that accumulation has been falling slowly but steadily since August. Of course, there is always the chance of another short squeeze. One can only hope.
GME daily chart
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.