Gamestop’s share price levels up on surprise profits

Two years on from the meme stock frenzy that gripped retail investors and sent shockwaves through Wall Street, Gamestop’s shares have once again gone on a tear, with the company turning a surprise Q4 profit.

- Gamestop shares gained up to 56% after hours following surprise profits.

- Retail investors accounted for 25% of all trades in January.

- Roundhill Meme ETF is up 23% year-to-date.

Gamestop’s [GME] share price increased by up to 56% in after-hours trading on Tuesday following the announcement of unexpected fourth quarter (Q4) profits after markets closed.

 By the close on Tuesday, Gamestop’s shares had fallen 4.4% year-to-date and 14.6% in the past month alone. The post-earnings tear took them to their highest level this year.

 Other meme stocks, however, are not enjoying the same success.

 Bed Bath & Beyond’s [BBBY] January earnings report revealed steep year-over-year declines in earnings and revenue, and the retailer has since been looking to raise $1bn of fresh capital in a bid to stave off bankruptcy. Bed Bath & Beyond’s share price fell to a 30-year low on Monday, after announcing it would seek shareholder approval for a reverse stock split. It is down 67.3% year-to-date.

Cinema chain AMC [AMC] is in a slightly healthier state, though it too is attempting to raise capital. Having exceeded analyst expectations in its February earnings report, its stock is up 8.4% year-to-date, but has dropped 27.7% in the past month.

Bed Bath plugging the gap

Gamestop reported earnings of $0.16 per share on revenue of $2.2bn for the three months to 28 January 2023. Revenue was 2.3% above analyst expectations, despite falling 1.2% year-over-year.  

However, analysts had forecast a loss of $0.13 per share, meaning the profits came as a major upside surprise. For full year (FY) 2022, losses of $1.02 per share beat the expected $1.31 per share expected by Refinitiv analysts, while FY revenue of $5.93bn beat a forecast of $5.88bn.

AMC reported adjusted net losses of $0.14 per share after markets closed on 28 February, a 33.3% improvement on the $0.21 that analysts polled by Refinitiv had forecast. Revenue of $990.9m beat the $977.67m the analysts had forecast, but marked a 15.4% decline year-over-year.

 For FY 2022, AMC revenue increased 54.73% to $3.91bn, slightly ahead of analysts' expectations of $3.90bn, while losses of $0.69 per share marked a year-over-year improvement of 44.8% and beat analyst expectations by 46.1%. 

Bed Bath & Beyond’s results, released after markets closed on 10 January, revealed a 33% year-over-year revenue decline and a 42.2% increase in net losses.

The company has been raising funds via preferred stock and warrant offerings, having teetered on the edge of bankruptcy early in the year. As of 14 March, Bed Bath & Beyond had raised $460m.

AMC is also raising new funds, with its investors approving a reverse stock split and share conversion on 14 March. The move will enable AMC to sell additional stock in order to reduce its debt load. However, AMC’s share price fell 15% in response to the move.

Reddit investors going for silver

Retail investors have regained their appetite since the height of meme stock mania two years ago. Data from JPMorgan suggests that retail investors accounted for a record 25% of all trades in January.

“It would be unwise to underestimate the importance of the retail cohort,” analysts at consultancy Vanda Research told the Financial Times. Vanda’s analysis shows that retail investors put $1.5bn into markets every day in the month to 18 February.

Further research from Vanda shows that this cohort has exploited the recent turmoil among banking stocks by purchasing the dip in these companies. On 15 March, retail investors put $1.4bn into underperforming financial and energy stocks, with some adventurous investors taking bets on regional banks like First Republic [FRC].

Meanwhile, investors from r/WallStreetBets, the Reddit forum which catalysed the original meme stock mania, have set their sights on silver in their latest short squeeze strategy. Members of the forum encouraged each other to buy silver and related assets in order toinflate the silver price and hit financial institutions shorting the precious metal. 

Funds in focus: The Roundhill Meme ETF

The strength of 2023’s retail investor trend, particularly for meme stocks, is reflected in the performance of the Roundhill Meme ETF [MEME]. The fund is up 22.9% year-to-date but down 2.4% in the past month.

As of 21 March, MEME’s top holding is crypto exchange Coinbase Global [COIN], with a 6.17% weighting. Gamestop has a 4.02% weighting, and AMC has a 3.22% weighting. At the current time, the fund doesn’t hold Bed, Bath & Beyond.

One of the few thematic ETFs which does hold Bed, Bath & Beyond is the Principal Millennial Global Growth ETF [GENY], which has a 0.05% weighting in the stock as of 22 March.

GENY has gained 6.9% year-to-date but is down 2.9% in the past month.