GameStop enters into crypto partnership as it reports mixed financial results

Grapevine-based GameStop Corp. reported mixed results in the second quarter, but showed it is leaning into a strategy shift towards non-fungible tokens by announcing a partnership with cryptocurrency exchange FTX US.

Net sales were $1.14 billion in the second quarter, the company said in a statement Wednesday. Analysts were expecting $1.28 billion. The company’s net loss nearly doubled to $108.7 million. GameStop has not reported a quarterly profit since late 2021.

At the same time, GameStop said it will partner with FTX US, one of the largest cryptocurrency exchanges, on new e-commerce and online marketing efforts, and will begin carrying FTX gift cards in select stores. The financial terms of the partnership are not being disclosed. GameStop shares rose about 13% in extended trading.

Players are among the NFT industry’s largest target group. In June, the company launched a digital asset wallet to allow players to store, send and receive cryptocurrencies and NFTs, and in July it rolled out an NFT marketplace, despite sales of such digital artefacts slowing amid the crypto industry crash.

FTX US recently launched a stock trading service to all US users, including non-crypto investors, in a move to expand its client base and increase assets under custody. It has also partnered with Reddit to enable crypto payments from Reddit users.

The partnership with GameStop also unites two companies with a shared link: Robinhood Markets Inc., the free trading app that investors used to bid up the price of GameStop stock in last year’s meme stock rally. FTX US founder and CEO Sam Bankman-Fried took a 7.6% stake in Robinhood earlier this year.

GameStop’s strategy has fluctuated several times in recent years as game sales have shifted away from physical discs to online downloads. Much of the retail business was wound down during Covid shutdowns, and results have been further hampered by supply constraints on consoles. Total spending fell 13% in the second quarter from a year earlier, according to industry researcher NPD Group.

While it still sells games, hardware and toys, GameStop’s management has pushed the company into new growth paths with underwhelming results so far. In June, the company launched a digital asset wallet to allow players to store, send and receive cryptocurrencies and NFTs. In July, GameStop launched its NFT marketplace during a major downturn for the crypto industry. On its first day, the marketplace earned $44,500, according to Ars Technica.

Just days before the marketplace’s launch, GameStop fired CFO Mike Recupero and laid off several employees. Although the company said at the time it was “the right number of employees” after a round of hiring in 2021, it has also confronted a conflict over strategy between recent hires, many from e-commerce giant Amazon.com Inc., and GameStop employees with backgrounds in brick and mortar sales, Bloomberg has reported. Skills related to online sales do not translate to negotiating leasing agreements and running stores.

Part of the wave of new hires two years ago included CEO Matt Furlong and the now-departed CFO, both of whom came from Amazon with expertise in e-commerce. GameStop chairman Ryan Cohen founded pet e-commerce site Chewy Inc.

With Cohen, “you have a guy who is very successful in selling products to people who make repeat purchases, like dog owners,” Wedbush Securities analyst Michael Pachter said. “He’s trying to apply that model to a consumer who doesn’t make repeat purchases. And he’s competing with console manufacturers who deliver games electronically and consumers who also prefer to download games electronically.”

In stores, GameStop’s pivot to focus on toys and collectibles appears to be paying off with sales reaching $223.2 million for the quarter, up from $177.2 million in the same quarter last year.

Cohen, also an activist investor through his RC Ventures, recently faced criticism after exiting his position in another meme stock, Bed, Bath & Beyond Inc. for a $68.1 million profit in mid-August. Retail investors who had flocked to him during the meme-stock craze felt burned by his departure and racked up millions in losses. GameStop’s shares plunged in the aftermath.

During the pandemic, GameStop became emblematic of the so-called meme-stock craze in which retailers bid up the price of certain companies, prompted by chatter on Reddit, Discord and other social media, rather than business fundamentals. The stock has been volatile since then. The shares are down 35 percent this year.