Shares in Fortescue Metals Group Limited (ASX: FMG) are rising today, following the company’s confirmation of reports it’s in productive talks with the Democratic Republic of Congo. The Fortescue Metals share price is currently $23.47 – 1.08% higher than its previous close.

This morning, Fortescue Metals responded to reporting by the Australian Financial Review (AFR), stating it’s in talks to develop the $103.8 billion suite of Grand Inga Dam hydroelectric projects.

Let’s take a closer look at the news on the S&P/ASX 200 Index (ASX: XJO) iron ore giant today.

Fortescue’s African green energy focus

On Sunday 13 June, the AFR reported the iron ore miner is taking the first steps in its diversification strategy, looking to invest $100 billion in hydro energy.

The AFR reported Fortescue is expected to invest in and hold a majority stake in the Grand Inga Dam projects.

The Grand Inga Dam is the world’s largest proposed hydro energy project. It could produce up to 42,000 megawatts of electricity.

Fortescue confirmed the news to the ASX this morning.

The company stated it hasn’t made a formal agreement with the central African nation. However, the Democratic Republic of Congo government has directed bodies interested in the projects to Fortescue Future Industries.

The AFR quoted Fortescue Metals’ chair Andrew Forrest as saying:

We have a number of parties highly interested in supporting our projects and Fortescue will invest on behalf of itself and its supporters over $US100 billion developing the top hydro, solar and geothermal sites in Africa.

Fortescue will take each project through to bankable feasibility approval where there are an array of international investors and lenders willing to participate in the green energy revolution.

As reported by the AFR, Forrest said Fortescue has “firm interest… in Europe” for 100 gigawatts of renewable energy the company could generate through the hydro energy projects.

Fortescue Metals share price snapshot

The Fortescue Metals share price has failed to ignite on the ASX so far in 2021.

Currently, the Fortescue share price is up by a modest 0.17% from the start of this year. However, it has gained around 64% since this time last year.

The iron ore giant has a market capitalisation of around $73 billion, with approximately 3 billion shares outstanding.

The post The Fortescue (ASX:FMG) share price is gaining today appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. 

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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ASX uranium shares are in a sea of red on Tuesday.

At the time of writing, leading ASX uranium producers and explorers such as Paladin Energy Ltd (ASX: PDN), Boss Energy Ltd (ASX: BOE) and Deep Yellow Limited (ASX: DYL) are plunging by 13.91%, 8.11% and 7.78% respectively.

What’s driving the selloff for ASX uranium shares?

ASX uranium shares are on the slide following reports the US Government is assessing a leak at a Chinese nuclear power plant.

The plant is a joint venture between state-run China General Nuclear Power Group, which owns 70%, and French power giant Electricite de France (EDF) which owns the remaining 30%.

According to the Wall Street Journal, EDF requested an extraordinary board meeting with Chinese managers to gather more information about the buildup of gases inside one of the plant’s reactors. The French company warned of an “imminent radiological threat”.

The BBC reported a slightly different narrative, saying that EDF confirmed that the built-up gases within the plant were deliberately released. The plant’s Chinese owners refute the claims of a potential leak and say that the plant is operating safely.

The International Atomic Energy Agency (IAEA) has reported that “at this stage, the agency has no indication that a radiological incident occurred”. The agency is currently in contact with its counterparts in China to assess the issue.

A hit to uranium confidence

The uranium sector has staged a bullish comeback in recent months, after hitting multi-year lows around the time of the COVID-19-induced market crash.

In the case of Paladin Energy shares, they tumbled by more than 90% from 2007 highs of around $8.50 to as low as 3.5 cents in March 2020.

The harsh selloff was driven by the significant decline in uranium prices, from 2007 peaks of ~US$135/lb to lows of about US$20/lb by 2016. This sent many producers, like Paladin Energy, into hibernation.

More recently, uranium prices have edged higher to the US$30/lb mark.

Paladin Energy believes a supply shortage in uranium is imminent, with current supply unable to meet demand. The company recently initiated a capital raising to help clear debt and restart uranium production.

The primary use case of uranium is fuel for nuclear power reactors. Paladin Energy says that nuclear is the second-largest source of global clean energy with almost zero-carbon emissions.

Despite the recent resurgence in ASX uranium shares, the potential incident at the Chinese power plant appears to be taking a toll on sentiment.

The post Why these ASX uranium shares are plunging today appeared first on The Motley Fool Australia.

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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ASX data centre shares have been receiving more media attention as the growth in global cloud computing shows no signs of easing.

Cloud computing, if you’re unfamiliar, involves storing and processing data outside of your own computer hardware. The cloud, then, simply entails vast server networks located in data centres.

ASX data centre shares have benefited from multiple years of growth in cloud computing. And with the onset of the global pandemic, which drove a huge shift to working, socialising and shopping from home, that growth has only sped up.

According to the Australian Bureau of Statistics (ABS) Characteristics of Australian Business report, released earlier this month, 55% of Australian businesses are now leveraging paid cloud computing. Just 5 years ago, in 2015–2016, that figure was only 31%.

Now one of the world’s biggest companies, Microsoft Corporation (NASDAQ: MSFT), is aiming to take its Xbox game consoles to the clouds.

Gaming in the cloud

As reported by the Australian Financial Review, the prototype Xbox console, “which forms the basis of Microsoft’s ‘xCloud’ strategy, has no hand-held controllers, no Blu-ray drive, and doesn’t plug into your TV.”

The prototype, which operates on something known as a ‘blade’, runs in Microsoft’s own Azure data centres. It’s already been released in the United States and is currently being beta-tested Down Under.

According to Phil Spencer, executive vice-president in charge of Microsoft’s Xbox gaming business:

When I think about reaching the 3 billion people who play video games today, our ability to deliver AAA games to any screen that someone already owns has to be the place we will find the most customers… We might end up with more consoles in data centres than we do in people’s homes.

While Microsoft is deploying the xCloud prototypes in its Azure data centres, the trend highlights the growth potential for leading ASX data centre shares.

2 leading ASX data centre shares

There are 2 ASX data centre related shares listed on the S&P/ASX 200 Index (ASX: XJO).

First up we have Nextdc Ltd (ASX: NXT) with a market cap of $5.4 billion.

The Nextdc share price, up 1% in intraday trading, has gained 31% over the past 12 months. That compares to a 29% gain posted by the ASX 200. Year-to-date Nextdc shares have come under pressure, down 3%.

Next up is Megaport Ltd (ASX: MP1), a software-defined network service provider which enables enterprise customers to connect between data centres, with a market cap of $2.5 billion.

The Megaport share price is up 1% in afternoon trade and has gained 17% over the past 12 months. Megaport shares are up 15% so far in 2021.

The post How Microsoft’s new Xbox could spur ASX data centre shares appeared first on The Motley Fool Australia.

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Bernd Struben has no position in any of the stocks mentioned. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended MEGAPORT FPO and Microsoft. The Motley Fool Australia has recommended MEGAPORT FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Austal Ltd (ASX: ASB) share price is taking a beating this morning. This comes after the global shipbuilder and defence contractor announced a negative FY21 earnings update.

At the time of writing, Austal shares are down 7.73% trading at $2.15.

Guidance downgrade

In today’s statement, Austal advised it now expects earnings before interest and tax (EBIT) to be in the range of $112 million to $118 million, with revenue of approximately $1.55 billion.

This compares to its previous guidance of $125 million EBIT and revenue of approximately $1.65 billion for FY21.

From a year-on-year perspective, in FY20, Austal delivered an EBIT of $130.4 million and revenues of $2.1 billion. This means that today’s earnings downgrade will result in a greater year-on-year decline in earnings, with EBIT falling between 9.5% and 14%, and a 26% slide in revenue.

Why earnings are sliding

Austal had previously flagged COVID-19 related issues in its 1H21 results, citing delays as a result of the pandemic had shifted revenue into FY22.

Today’s announcement has revealed a continuation of these challenges, with the company advising “delays experienced on programs and associated costs caused by COVID-19 related border closures, travel restrictions and resourcing challenges that are impacting Austal’s shipbuilding operations in Australia and the Philippines”.

Another drag on earnings was the company’s “requirement to (provide) for expected future expenses” associated with civil penalty proceedings commenced by ASIC in the Federal Court recently.

After investigating its behaviour in 2016, ASIC has started a civil case against the shipbuilder over allegations Austal was holding back information about a major earnings downgrade.

Austal share price at 2-year lows

Austal shares staged a meteoric rise in 2019, surging from ~$2.00 in January to as high as $4.99 by November.

In recent times, the Austal share price has struggled to perform, despite the S&P/ASX 200 Index (ASX: XJO) rallying to record all-time highs.

At current ~$2.20 levels, it’s almost back to square one for Austal shares.

The post Austal (ASX: ASB) share price down 8% after earnings downgrade appeared first on The Motley Fool Australia.

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Austal Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Link Administration Holdings Ltd (ASX: LNK) share price is on the move this morning. This comes after the company provided an update on its Property Exchange Australia (PEXA) business.

After touching an intraday high of $5.00 in early morning trading, the Link share price has slipped and is now hovering around its previous closing price of $4.93. In comparison, the S&P/ASX 200 Index (ASX: XJO) is up 1% to 7,386 points.

What did Link announce?

Investors are pushing the Link share price into negative territory today after the company’s news regarding PEXA.

According to Link’s statement, PEXA has lodged a prospectus for its upcoming initial public offering (IPO).

This follows a completed cornerstone bookbuild process and signed underwriting agreement by Link at the end of last month.

The enterprise value of the IPO is around $3.3 billion, with Link’s carrying value at around $1.6 billion.

Link owns a 44.18% interest in Torrens Group Holdings Pty Ltd which is the holding company for PEXA. However, prior to any scale back from this process, Link’s shareholding in PEXA will lift to about 47%.

Link will receive a minimum of $50 million in cash proceeds as a result of the IPO, as well as any proceeds from the scale back.

The proposed listing date on the ASX for PEXA is 1 July 2021, provided all ASX admission requirements are met.

Management commentary

Link Group CEO and managing director Vivek Bhatia said:

PEXA continues to lead the transformation of digital property settlement in Australia and now processes more than 80% of property transfers nationally through its platform.

Its success in Australia supports strong cash flows as well as further growth opportunities through valuable data-driven insights for property market participants in Australia and the potential to replicate its property lodgement and settlement platform internationally, starting with the United Kingdom.

PEXA is a digital platform that enables settlement for real estate assets. Conveyancers, lawyers and financial institutions are able to complete financial transactions within minutes online, as compared to traditional methods.

The advantages of the platform are reduced time and costs in the property exchange process including funds being transferred electronically as opposed to cheques.

The Link share price has gained approximately 12% from this time last year, but is down 11% in 2021.

The post Link (ASX:LNK) share price edges lower on PEXA update appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Link Administration Holdings Ltd. The Motley Fool Australia has recommended Link Administration Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Payright Ltd (ASX: PYR) share price is shooting higher today after the company announced an upbeat fourth quarter trading update. At the time of writing, the Payright share price is up 5.56% to 57 cents per share.

Payright is an emerging player in the buy now, pay later (BNPL) space, providing in-store credit, point of sale and online deferred payment options. The company specialises in transactions between $1,000 and $20,000.

What did Payright announce?

In today’s statement, Payright announced it had achieved gross merchandise value (GMV) of $16.9 million for April and May, a 135% increase compared to the prior corresponding period.

In addition to its fourth quarter GMV update, the company also provided FY21 forecasts across key performance metrics.

The company forecasted a 55% increase in total customers to 52,500 by 30 June 2021, a 45% increase in gross receivables to ~68.2 million, and a 42% increase in merchant stores to 3,400.

The market appears to be pleased with Payright’s results and guidance, with sending Payright shares up by more than 5%.

Management commentary

Payright Co-CEO Piers Redward commented on the company’s fourth quarter results:

The growth in customer numbers is particularly pleasing, and reflects the success of the national, multi-channel brand building campaign we have undertaken across five state capitals in Australia. We have expanded the functionality of our platform to facilitate rapid customer onboarding and frictionless checkout. We have also introduced the first of our direct-to-customer features, Bill Smoothing, which allows consumers to spread the cost of their utilities bills, council rates, vehicle registration, and car and home insurance premiums, up to $1,000 over a three-month term.

With our innovative user experience technology now implemented, a growing number of merchants and customers on the Payright platform, and an increasing receivables book, we are very well placed to continue our strong revenue growth into FY22 and beyond.

A challenging period for the Payright share price

The Payright share price listed on the ASX on 23 December last year, closing at $1.00 despite a listing price of $1.20.

Its shares briefly rallied to a high of $1.22 on 16 February 2021, coinciding with the broader BNPL rally that took place in February.

As the BNPL sector began to sell-off between late February to May, the Payright share price tumbled from the $1.00 level to as low as 41.5 cents on 31 May.

The post Payright (ASX:PYR) share price jumps 5% on positive quarterly update appeared first on The Motley Fool Australia.

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is charging notably higher again. At the time of writing, the benchmark index is up 0.9% to 7,378.2 points.

Four ASX shares that are climbing more than most today are listed below. Here’s why they are racing higher:

iSentia Group Ltd (ASX: ISD)

The Isentia share price has surged 140% higher to 16.5 cents. Investors have been fighting to get hold of the media intelligence company’s shares after it announced the receipt of a takeover offer. According to the release, UK-based Access Intelligence has tabled a 17.5 cents per share offer, which represents a 157% premium to its last close price. Access Intelligence provides software products that address the fundamental business needs of customers in the public relations, marketing, and communications industries. The Isentia board is recommending the offer.

Premier Investments Limited (ASX: PMV)

The Premier Investments share price has jumped 6% to $29.15. The catalyst for this appears to have been a broker note out of Macquarie this morning. According to the note, Premier Investments’ guidance for FY 2021 is ahead of the broker’s expectations. In response, Macquarie has reiterated its outperform rating and $31.00 price target on the company’s shares.

ResMed Inc. (ASX: RMD)

The ResMed share price has stormed 7% higher to $30.33. Investors have been buying the sleep treatment focused medical device company’s shares following favourable industry news. That news is that rival Philips has been forced to recall 3.5 million ventilation devices for treating sleep apnoea due to potential health risks.

Service Stream Limited (ASX: SSM)

The Service Stream share price is up 3% to 93.2 cents following the release of a business update. That update reveals that the essential network services provider continues to expect its second half operating earnings to be in line with its first half results. Investors may be relieved that there has been no further deterioration in its performance since its last update.

The post Why Isentia, Premier, ResMed, & Service Stream shares are racing higher appeared first on The Motley Fool Australia.

More reading

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James Mickleboro does not own any shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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How the tables have turned for L1 Capital… Back in April 2018, the wealth manager had just launched one of the biggest Listed Investment Company (LIC) IPOs in the ASX’s history. Based on the unlisted managed fund of the same name, this LIC looked to replicate L1’s successful investment strategy that had allowed this unlisted fund to return 19.6% per annum since its inception in 2014.

Long or short?

The L1 Long Short Fund Ltd (ASX: LSF) debuted on the ASX with a market capitalisation of roughly $1.33 billion. The ASX doesn’t host many funds which employ both a ‘long’ strategy (which means buying shares) and a ‘short’ strategy (involving short selling shares to profit if the company falls in value).

As such, the Long Short Fund attracted a lot of attention in this regard too. But things quickly went sour for this LIC. Between April and December 2018, the LIC lost around 36% of its value – a figure which grew to more than 60% during the March COVID crash last year.

However, things have been turning around nicely for the Long Short Fund ever since. Today, Long Short Fund shares are trading for $2.61 – well above the company’s IPO price of $2 and pretty much at an all-time high. Since the lows of March last year, the LIC has managed to grow around 230%.

A rapidly growing net tangible asset (NTA) backing has helped turn things around for the Long Short Fund. This has seen the LIC’s NTA rise by 24% over the 6 months to 31 May 2021, and 70.1% over 12 months. Both of those figures are more than double what the S&P/ASX 200 Index (ASX: XJO) has returned over the same periods.

Now that this LIC has seemingly gotten its mojo (and arguably, reputation) back, L1 Capital is looking to expand its offerings.

A new L1 fund?

According to a report in the Australian Financial Review (AFR) today, L1 Capital is looking to expand its LIC offerings. The company is reportedly less than a month away from launching a new fund for ASX investors called the ‘L1 Capital Catalyst Fund’. This fund will be available to retail and institutional investors from 1 July. It will invest in a highly concentrated portfolio of 6 to 8 stocks. These companies will be subject to a criterion that is “highly selective” and based on quality, value and potential share price catalysts.

The new fund will be headed by James Hawkins. Mr Hawkin told the AFR that “the time is right” for the style that this new fund intends to follow:

It could be a high growth asset embedded within a conglomerate structure which is not fully valued by the market, and if extracted through either a trade sale or an IPO might unlock significant value… It might be the fact that following the pandemic last year, a lot of ASX listed companies’ balance sheets are under-levered, and they are under-levered because they anticipated the COVID pandemic was going to be bigger than it eventually was in Australia.

Therefore they may be in a position to buy back more stock because their stock hasn’t rebounded, and reinstate the dividend at a higher level than they were perhaps contemplating 12 months ago… There’s a whole range of examples of where we see latent value opportunities.

Given L1 Capital’s history, it will be interesting to see how this new fund fares upon its launch next month.

The post After a thumping year, L1 Capital to expand fund offerings appeared first on The Motley Fool Australia.

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• Quarterly rebalance: Appen kicked out of ASX 100, Uniti added to ASX 200

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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At lunch on Tuesday, the S&P/ASX 200 Index (ASX: XJO) is on course to start the week with a strong gain. The benchmark index is currently up 1% to 7,384.8 points.

Here’s what has been happening on the market today:

Tech shares charge higher

Tech shares such as Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) are charging higher on Tuesday and playing a key role in the market’s gains. This follows a strong night of trade on the Nasdaq index, which saw the famous index rise 0.75% to a record high. The S&P/ASX All Technology Index (ASX: XTX) is up over 1% at the time of writing.

Bank of Queensland’s provision release

The Bank of Queensland Limited (ASX: BOQ) share price is pushing higher after announcing that its next update will include a decrease in its collective provision. Bank of Queensland revealed that it expects to reduce its collective provision by $75 million. This is being driven primarily by Australia’s improved economic outlook, leading to improvements in data quality relating to collateral.

Premier Investments hits record high

The Premier Investments Limited (ASX: PMV) share price has stormed to a new record high today. This appears to have been driven by a positive reaction from analysts at Macquarie to its recent trading update. Macquarie notes that the company’s guidance is ahead of its expectations. This led to the broker retaining its outperform rating and $31.00 price target on Premier Investments’ shares.

Best and worst ASX 200 performers

The best performer on the ASX 200 on Tuesday has been the A2 Milk Company Ltd (ASX: A2M) share price with a gain of almost 8%. Investors may have been expecting a2 Milk to have been dumped out of the ASX 100, but it survived by the skin of its teeth. The worst performer has been the De Grey Mining Limited (ASX: DEG) share price with a 6% decline amid weakness in the gold sector.

The post ASX 200 up 1%: Tech shares rise, Bank of Queensland’s provision update appeared first on The Motley Fool Australia.

More reading

• Why ASX energy shares could outperform this morning
• Why the Bank of Queensland (ASX:BOQ) share price is pushing higher
• 2 top ASX 200 shares that might be buys today
• Why this leading broker rates the Premier Investments (ASX:PMV) share price as a sell
• ASX 200 Weekly Wrap: ASX edges even higher, led by tech rebound

James Mickleboro does not own any shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO and Premier Investments Limited. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

GameStop (NYSE: GME) has been one of the top-performing stocks of 2021. Shares of the meme stock skyrocketed in January, as bullish traders sparked an epic short squeeze.

Short interest has declined significantly since then. Nevertheless, interest from retail traders continues to buoy GameStop shares. Despite recent volatility — and a 27% post-earnings plunge — the stock is up more than tenfold year to date.

GameStop stock performance and short interest, data by YCharts.

However, the video game retailer’s underlying results don’t support this strong stock market performance. By any objective standard, GameStop’s core business is dying. The company’s first-quarter earnings report — released on Wednesday — highlighted its ongoing decline.

Another bad earnings report

GameStop tried to paint its Q1 performance in the best possible light. The company noted that sales increased 25% year over year to $1.28 billion, despite a 12% reduction in its store count and continued store closures in Europe. Meanwhile, GameStop’s adjusted net loss shrank by more than 80% year over year to $29.4 million ($0.45 per share), beating the average analyst estimate.

Yet GameStop clearly remains in a downward spiral. The year-ago period included the peak of pandemic-related store closures. Two years ago, GameStop earned a small profit on $1.55 billion of revenue during the first quarter — and that was considered a terrible performance. In the first quarter of fiscal 2018, GameStop posted adjusted EPS of $0.30 on $1.79 billion of revenue.

Thus, GameStop’s first-quarter revenue has plunged nearly 30% over the past three years, and the retailer has swung from being solidly profitable to solidly unprofitable.

GameStop Revenue (TTM), data by YCharts.

Blaming the pandemic would be overly simplistic. After all, Best Buy (NYSE: BBY) recently reported that sales surged 36% year over year last quarter. Best Buy’s first-quarter revenue has grown 27% over the past two years combined. Moreover, growth in the consumer electronics giant’s entertainment segment — which includes gaming hardware, software, and accessories — has significantly outpaced Best Buy’s overall growth over the past two years.

It gets worse

The deeper one digs, the worse GameStop’s Q1 performance looks. This year, GameStop is benefiting from the launch of new Sony PlayStation and Microsoft Xbox consoles, a tailwind that only occurs once every seven years or so. Those console launches helped GameStop grow its sales of hardware and accessories by 37% year over year last quarter.

By contrast, software sales fell by nearly 5% from last year’s already-depressed level, reaching $398 million. Over the past two years combined, GameStop’s software sales have plunged by 46%.

This shouldn’t be surprising. Consumer demand has steadily shifted toward digital downloads in recent years, disintermediating video game retailers like GameStop. Meanwhile, GameStop continues to lose share within this shrinking market to higher-traffic retailers (like Best Buy).

GameStop’s eroding software sales will make it extremely difficult to return to profitability. GameStop has traditionally generated more than half of its gross profit from software and less than 10% from new hardware, which sells at notoriously thin margins.

A new strategy?

Many GameStop bulls expect that a new strategy focused on e-commerce will turn things around for the ailing retailer. Indeed, GameStop announced last week that it has appointed two Amazon.com veterans as its new CEO and CFO. (Of course, since the CEO has primary responsibility for setting corporate strategy and the new CEO hasn’t even started yet, it’s a stretch to say that GameStop has any strategy at all.)

However, new management and a new strategy won’t change the fundamental realities weighing on GameStop’s business. Software sales will continue to shift to digital downloads. Sony and Microsoft don’t need GameStop’s help in that department. Hardware sales will be even less profitable in an e-commerce format, where GameStop will have to absorb higher credit card fees and shipping costs.

In any case, Amazon and Best Buy are light years ahead of GameStop in e-commerce. Both have massive resources at their disposal, giving GameStop little chance of catching up.

The meme stock rally is allowing GameStop to raise huge sums of cash by selling stock to gullible investors, which will allow it to stay in business for a long time even if it never returns to profitability. But a genuine turnaround for the business (as opposed to the stock) seems as far-fetched as ever.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post GameStop earnings: No sign of a turnaround appeared first on The Motley Fool Australia.

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Adam Levine-Weinberg has no position in any of the stocks mentioned. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Microsoft. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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