GameStop's Earnings Could Surprise the Market

Globe and Mail

6 hours ago

GameStop Corp. (GME) will release Q1 earnings after the market closes on Tuesday, June 10. Its recent purchase of Bitcoin, which may continue, could push earnings per share (EPS) higher than analysts' expectations. GME stock is cheap here.
GME closed at $29.58 on Friday, June 6. I previously wrote about GME's value in a June 1 article, ' GameStop's Bitcoin Purchase and Potential Debt Conversion Increases GME's Value.'
I showed in that article how GME could be worth almost $40.00 per share with a Sum-of-the-Parts (SOTP) valuation method. However, if earnings from its Bitcoin purchases are included, we can also value the stock on a P/E basis.
Bitcoin Gains
GameStop announced on May 28 that it had purchased 4,710 Bitcoin. There was no date given when these were purchased.
So, at today's price of $106,000 from Coinbase, these digital assets are worth almost $500 million:
4,710 BTC x $106,000 = $499,260
On March 25, GameStop announced that its board had authorized the company to add Bitcoin as a treasury reserve asset.
During Q1, BTC ranged from $93,400 to $82,551. But from March 25 to March 31, BTC traded in a range of $87,500 to $82,551, or about $85,000.
So, let's assume GameStop purchased less than half of their 4,710 BTC assets during that period, or 2,000 Bitcoin. That means they may have spent on average $170 million:
2,000 BTC x $87,000 = $170 million
So, GameStop's unrealized gain on these digital assets is now $42 million:
2,000 BTC x ($106,000 - $85,000) = 2,000 x $21,000 = $42 million
If the company bought more of these assets in Q2 with an average all-in cost of say $90,000, its average unrealized gains are:
$106,000 - $90,000 = $16,000 x 4,710 = $75.3 million
Bitcoin Gains/Losses Now Reported in Income
Based on a FASB rule (ASU 2023-08) that went into effect starting in 2025 (see Deloitte's ' FASB Issues Final Standard on Crypto Assets '), companies now report unrealized gains and losses in income during each reporting period.
As a result, let's estimate how this might affect GameStop's Q1 earnings per share.
For example, if its average cost was $85,000 and the ending price was $82,551, it would have an unrealized loss in Q1:
2,000 BTC x ($85,000 - $82,551) = 2,000 x -$2,449 = -$4.898 million
Based on 447.1 million shares outstanding, this is a negligible effect:
-$4.898 million / 447.1 m = -0.01 earnings per share
But for Q2, the effect is larger. So far, the price of BTC is up by $23,449 (i.e., $106,000-$82,551), so based on an estimated average cost of $93,000 in Q2, the gain is much higher:
$13,000 (i.e., $106,000 - $93,000) x 2,710 = $35.2 million
I only used 2,710, since I assumed that the company bought just 2,000 BTC during Q1, and the remainder of 2,710 during Q2. If it bought more in Q2, the effect will be higher on its earnings per share.
Moreover, the unrealized gain of the original 2,000 BTC will also increase Q2 EPS:
2,000 x ($106,000-$85,000 = $21,000) = $42 million
As a result, GameStop could report a total of $75.2 million in unrealized gains in earnings per share during Q2. That will have a much higher effect on earnings per share:
$75.2m / 447.1 million shares = 0.1682 = 17 cents per share
That means its EPS will be 17 cents higher than expected. This could be either in Q1 or Q2 (or a mixture of both).
Target Price
Analysts now project only 4 cents per share for Q1. So, this could be a huge surprise for the market. Moreover, analysts are expecting just $0.46 EPS for 2026. If we add 17 cents to this, its annual EPS will be 63 cents.
And, assuming that BTC continues to make an average of 10 cents per quarter (assuming further Bitcoin purchases and BTC keeps rising), its annual EPS could hit at least $1.00 per share over the next 12 months (NTM).
As a result, its forward NTM P/E is low:
$29.58 / $1.00 forward EPS = 29.6x multiple
Analysts have not been properly following GME stock. Once they incorporate GameStop's higher EPS from Bitcoin purchases, investors may expect to see GME rise from here.