GameStop (NYSE:GME) is set to report FQ4 2014 earnings before the market opens on Thursday, March 27. GameStop has had a busy quarter with two major console releases, Microsoft’s (MSFT) Xbox One and Sony’s (NYSE:SNE) PlayStation4. The holiday season is always the busiest and most profitable time of the year for GME, and this quarter the 2 console releases are expecting to push sales 6% higher than FQ4 of last year. But it might not be all fun and games. This quarter, the weather has been brutal to retailers as snowstorms and the extreme cold have kept shoppers off the road and out of stores. GameStop will also be challenged by the trend of video games increasingly being downloaded through app stores rather than purchased in brick and mortar sales. Another piece of potentially troubling news is that Wal-Mart (NYSE:WMT) will soon be entering the used games trade, a subsector that GameStop essentially had a monopoly on. Here’s how investors expect GameStop to report Thursday.
The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.
The current Wall Street consensus expectation is for GameStop to report $1.93 EPS and $3.789B revenue, while the current Estimize.com consensus from 9 Buy Side and Independent contributing analysts is $1.95 EPS and $3.785B in revenue. This quarter, the buy-side as represented by the Estimize.com community is expecting GameStop to beat the Wall Street consensus on EPS by 2c while missing projections on revenue by $4 million.
Over the previous 6 quarters, the consensus from Estimize.com has been more accurate than Wall Street in forecasting GameStop’s EPS and revenue 4 times each. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly, it does a better job of representing the market’s actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, there is a small difference between the 2 groups’ expectations.
The distribution of estimates published by analysts on the Estimize.com platform range from $1.90 to $2.04 EPS and from $3.730B to $3.850B in revenues. This quarter, we’re seeing a moderate distribution of estimates on GameStop.
The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.
Over the past 4 months, the Wall Street EPS consensus dropped from $2.13 to $1.93, while the Estimize consensus fell from $2.11 to $1.95. Meanwhile, the Wall Street revenue forecast climbed from $3.658B to $3.789B, while the Estimize forecast remained relatively flat, changing from $3.786B to $3.785B. Timeliness is correlated with accuracy, and falling Estimize community EPS estimates going into a report are often a bearish indicator.
The analyst with the highest estimate confidence rating this quarter is turbinecity, who projects $1.96 EPS and $3.795B in revenue. In the Winter 2014 season, turbinecity is rated as the top dog among over 1000 contributing analysts. turbinecity is also ranked 6th all-time among over 4,000 contributors. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, turbinecity is making a bullish call, expecting GameStop to beat the Estimize community’s expectations on both the top and bottom line.
This quarter, contributing analysts on the Estimize.com platform are expecting GameStop to beat the Wall Street consensus on EPS, but come up a few million dollars short on revenue. On Thursday, we will see if new console launches can boost GameStop’s sales, or if the poor weather and trend for games to be downloaded rather than bought in stores will interfere.