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Meme stock GameStop (GME) is powering down after posting another dismal earnings report and announcing plans to sell up to 20 mln shares through an offering -- something that the company and traders of GME stock are quite accustomed to. Following a 29% dive last quarter, revenue plunged by 31% in Q2 to $798.3 mln, badly missing expectations, indicating that the company is still reeling from the shift to digital-based games from physical consoles and discs. 

• Despite GME's deep struggles, shares have jumped higher by 34% on a year-to-date basis, fueled by the reemergence of meme trader Keith Gill (Roaring Kitty) back in June 2023. From a fundamental perspective, there's not much there to justify those gains, but GME does have one significant factor working in its favor: namely, the wild swings higher in its stock have enabled GME to cash in by selling stock at elevated prices, providing it with a war chest of capital.
  • Preceding today's 20.0 mln share offering announcement, GME launched a 75.0 mln share offering on June 7 and a 45.0 mln at-the-market program in mid-May.
  • Thanks to these capital raising efforts, GME's cash and cash equivalents balanced totaled nearly $4.2 bln as of August 3, 2024, providing the company with plenty of leeway as it continues its turnaround plan.
  • The hefty cash balance also generated nearly $40 mln in interest income, which was a key driver behind GME's Q2 EPS beat.
• GME's turnaround plan centers on building a stronger omnichannel model, diversifying its product offerings to include more value-added items like collectibles, cutting costs, and reducing its store footprint. However, GME hasn't had much success in sparking demand through its omnichannel and product diversification efforts. In Q2, Collectibles revenue sank by 18% yr/yr to $139.4 mln, while Hardware & Accessories saw sales dive by 24% to $451.2 mln.
  • In terms of cutting costs and closing stores, GME has been more effective. Adjusted SG&A expense decreased by 14% in Q2 to $280.4 mln and over the past two years the company has shuttered over 800 underperforming stores.
  • The company has no intention of slowing this process down, either, disclosing in its SEC filing that it anticipates closing a larger number of stores than it has closed over the past few years once it completes its store portfolio optimization review.

The main takeaway is that GME's turnaround is still failing to gain traction and since the company opts to forgo holding earnings conference calls, it's difficult to put a timeline on when that turnaround may begin to pay bigger dividends. With that said, fundamentals haven't been the primary driver for the stock, so it wouldn't be overly surprising if GME quickly recovered from today's selloff.