GameStop (GME:NYSE) shares fall as investors ponder cash burn and widening losses

GameStop (GME:NYSE) shares tumbled by 10.3% during trading on Thursday, after the video game retailer reported that its widening losses in the fiscal third quarter. After the close of Wednesday’s trading session, GameStop reported a net loss of $105.4 million ($1.39 per share), from a loss of $18.8 million (29 cents per share) a year earlier.

Total revenue on an annualized basis increased to $1.30 billion from $1.00 billion a year earlier. The video game retailer stated that its sales expanded as the company forged new relationships with brands, including Samsung, LG, Razer, and Vizio. Inventories also grew to $1.14bn from $861m from a year earlier, its biggest in a decade as the company looked to get ahead of supply chain constraints and be well-stocked for the holidays to meet increased demand.

GameStop is one of the companies that has gotten fresh attention from investors, thanks to Reddit posts and the meme stock frenzy. Shares of the company have soared, along with other meme stocks including AMC Entertainment Holdings Inc. (AMC:NYSE) and Bed Bath & Beyond (BBBY:NASDAQ). That attracted the scrutiny of the U.S. Securities and Exchange Commission, prompting the regulatory body to request documents about trading activity.

The downward trend on the stock is understandable as there is still a lot of frothiness surrounding the company’s fundamentals. A world in which most video games are sold as digital downloads implies less opportunity for a retailer still running more than 4,200 stores at last count. The Texas-based is still opening new stores, having expanded into Seattle and Boston to draw talent in the tech hubs.

There is also a lot of huge debt clouds hanging over the company’s balance sheets. GameStop recently secured a $500 million asset-based lending credit facility to help with liquidity and reduce borrowing costs. Though the company’s coffers are still flush with more than $1 billion raised through stock sales to its enthusiastic investor base, it is burning cash—more than $306 million in the latest quarter alone.

As GameStop tries to transform from a brick-and-mortar chain into more of an e-commerce retailer, it has tapped a slate of new leaders. It enlisted Chewy (CHWY:NYSE) co-founder Ryan Cohen to lead the company’s turnaround as chairman on the company’s board. He shook up top management by hiring former Amazon (AMZN:NASDAQ) executives, Matthew Furlong, and Mike Recupero, as CEO and COO, respectively.

Yet amidst the uncertainty, the company’s new management is not forthcoming with information and prefers to shroud details of the company’s activities in secrecy. The company’s new management team provided few details about their turnaround strategy and has yet to share an outlook. Chief Executive Matt Furlong spoke for just seven minutes on Wednesday’s call and did not take questions from analysts and reporters – a trend that has persisted in several of the company’s earnings calls.

In brief remarks on Wednesday’s call, Furlong pivoted attention to other areas of the company’s operations, leaving out information on key areas. Furlong said GameStop has hired more than 200 senior employees from some top technology companies and expanded merchandise, such as adding more personal computing gaming items across about 60% of its U.S. locations. He said the company is committed to improving customer service and delivering goods faster.

These antecedents are raking up skepticism among investors who are seeking more clarity on the company’s activities. the mounting losses are creating doubt among the stock faithful, with many asking if cash outflows would accelerate in the coming year.

As of Wednesday’s close, GameStop shares are up 825% this year, but the stock is down by more than half from its high in January. While it would be close to impossible for the stock to replicate the astronomic performance it had at the beginning of the year, the future outlook for the stock is getting dimmer.