Why GameStop Stock Popped Today
Key Points
GameStop enjoyed a marked step-up in profitability in the first quarter.
The company's board of directors wants to return $2 billion to shareholders.
Shares of GameStop (NYSE: GME) rose on Wednesday after the video game retailer reported a surge in quarterly profits.
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Successfully navigating industry trends
GameStop's net sales jumped 14% year over year to $835.3 million in its fiscal first quarter, which ended on May 2.
The gains were fueled by the impressive performance of the company's collectible business. Sales in the fast-growing segment leaped 65% to $348.9 million.
GameStop has worked to diversify its revenue streams as the video game industry has migrated from physical discs to digital downloads.
This digital shift has made it easier to buy games online rather than in physical retail stores. That's pressured GameStop's customer traffic and dented its lucrative business of buying and selling pre-owned games.
In response to these challenges, CEO Ryan Cohen has moved to position GameStop as a place to buy and sell trading cards and other popular collectibles.
The plan seems to be working. GameStop's adjusted net income surged 145% to $179.3 million.
Shifting from dilution to buybacks
Equity offerings have led to lower per-share profit growth. GameStop's adjusted earnings per share did, however, increase by a still impressive 76% to $0.30.
Now, GameStop wants to use some of its sizable cash reserves to boost its per-share metrics. With over $8 billion in unrestricted cash and investments on its balance sheet, its board of directors authorized a $2 billion stock buyback program.
If GameStop can continue to crank out profits, these repurchases could support further share price appreciation.
Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.