GameStop Turns a Profit, But Core Business Keeps Shrinking

Key Points

• GameStop produced a better-than-expected quarter in Q1, but that's about all the good news that there is.
• The core business is declining and slowly consuming itself.
• The Bitcoin investment strategy has appeal but comes with elevated risks for investors.

Green shoots have appeared in GameStop’s NYSE: GME results.

The turnaround efforts have resulted in operating profitability, but it may not be sufficient to sustain the company's business.

While profitability has been achieved, the company’s core business continues to dwindle, and there is no real hope of it rebounding.

The takeaway for investors is that GameStop is now in a race to determine whether it can generate a profit on Bitcoin, doing so sustainably and with a significant impact, to remain afloat without eroding its shareholder value. 

GameStop Is Eating Itself to Death 

The cash balance and Bitcoin opportunity aside, GameStop’s core business is still in decline and slowly eating itself to death. The $732.4 million in net revenue represents a nearly 17% decrease compared to last year, a sequential decline, and a result that is worse than expected, despite strength in the collectibles segment. 

Segmentally, collectibles grew by 15%, offset by a 32% decrease in hardware and a 26% decline in software sales, the two critical segments. Investors holding out hope that the collectibles segment will reinvigorate the business should think again. The strength in segment sales was accompanied by a significant reduction in inventory of approximately $254 million, which raises other concerns.

The company produced profits for the quarter, but factors such as inventory reduction and its cash balance (and the interest income it produces) are also in play. Between them, they more than offset the company’s profits, suggesting that the core business isn’t in as good a shape as the headline figures indicate and will continue to deteriorate as the year progresses. 

And the balance sheet highlights aren’t all that impressive. The company has increased its cash balance, but at the expense of shareholder value, as evidenced by a 62% rise in the share count over the last year, including the addition of new convertible debt.

One of GameStop’s attractions was its lack of debt, but that appears to be changing. The takeaway from this development is that GameStop seems to follow in Strategy's NASDAQ: MSTR footsteps, which has been diluting value and increasing debt in exchange for its BTC position. 

GameStop’s Q1 Results Do Nothing to Change the Analysts' Outlook

GameStop’s Q1 results do nothing to change the analysts’ outlook, which is bearish to say the least. MarketBeat tracks only a single rating, pegged at Sell, with a price target of $13.50. That represents a 50% downside following the release, and it is a target the short-sellers are aiming for.

Short interest is well off the highs set in 2021 and 2022, but remains sufficiently high to cap market gains and pressure it lower in the absence of bullish catalysts. Regarding the institutions, they have been buying the stock on balance in 2025 but provide a weak tailwind, owning less than 25% of the shares and with a low buying volume. 

The price action following the release is bearish for this retail stock. The market fell more than 5% to confirm resistance at $30 for the second time in three weeks. Resistance at the $30 level is compounded by moving averages, including the 30-day EMA, which could pressure it lower in June and over the summer.

In this scenario, the market for GME stock could fall to $25 or lower, potentially hitting the low end of its trading range before the subsequent earnings report. 

The risk for bears is Bitcoin. The price of Bitcoin has been trending flat since GME made its first purchases, but is forecasted to rise significantly this year. The talk in early June is that BTC could increase by $20,000 to $40,000, hitting the $125,000 to $145,000 range by the end of the year. GameStop shares will likely track higher in that scenario and could break out of their trading range.