GameStop plunges on earnings, Trump Media soars for second day

It's another big day for meme stocks.

GameStop (GME) shares fell sharply at the open after the video game retailer reported disappointing fourth-quarter results.

One stock on the rise is Trump Media & Technology Group (DJT). The parent company of social media site Truth Social soared for a second day after officially merging with Digital World Acquisition Corp. and adopting the new name and ticker.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

Editor's note: This article was written by Stephanie Mikulich.

Video transcript

- Time for today's stock to watch, and that's GameStop shares plunging this morning after missing revenue estimates in the fourth quarter. It also slashed jobs as it attempts to cut costs. Now GameStop's plunge putting a dent in the broader meme trade Reddit is pulling back slightly today.

You have DJT though that's still rallying to the upside in pre-market trading up another 20%, but, Brad, we're talking about this because up until today and even in today's action, we have seen the return of the meme stock mania.

Yes, GameStop might be falling out of favor Reddit taking a bit of a break from the massive run up that we've seen since it went public just last week, but Trump Media, once again moving to the upside.

And what this really signals though for the market that appetite, the risk on appetite clearly still there. Whether or not it's comparable to what we saw back in 2020, 2021 when we think about GameStop once again, but also AMC, that is still up for debate. But clearly this could point to some of that froth that's in the market.

- you mentioned the GameStop news off the top, and on this earnings, one of the huge things for the company that still doesn't have an earnings call, by the way, so you don't get to hear from the executives they just give us an update on this business strategy seemingly once every 18 months at this juncture.

But what they're talking about this time around is establishing omnichannel retail excellence that's kind of similar to what they were talking about before, achieving profitability and then leveraging brand equity to support growth.

So ultimately, the achievement of profitability here, and this is where it comes back to what you were mentioning on the cost restructuring, this cutting of jobs, realigning that with current and anticipated future needs, and you really just had to go into the 10-K to ultimately find out what they were actually talking about within this.

They've taken cost reduction measures, other initiatives, they say, to really improve the efficiency of their operation, including the reduction of headcount here. And so that is going to be a major kind of lever that it seems like they're going to be willing to pull. We'll see if they have to close certain stores, unprofitable stores.

You've got to wonder, and especially as they laid this out in their own risk factors which has been a risk factor ever since much of the gaming industry went more to the cloud, which was the fact that people don't need to step in the store to buy many of these games.

And so at the end of the day, the way that you're going to trim a lot of overhead is to start shuttering some stores probably or looking at the hours that they're operating, and then even more so just the amount of headcount that's necessary to operate this entire behemoth of a gaming company that, unfortunately, most of it can actually just go through some of the consoles that are out there already.

- And it's also funny that we're also talking about GameStop earnings on a week when Reddit just went public and Reddit was really a forum where many of these GameStop retail traders have been talking about those trades where exactly they see the stocks going, now Reddit also being grouped in the meme trade as well.

So there is some excitement around those names. GameStop, though, clearly under pressure today because of those disappointing results and lots of questions about the fundamentals of that business.

- But for the short interest that's out there, which was the entire thesis behind where much of the conversation was, just look at some of the highly shorted positions that were out there.

And in GameStop's case, I mean, the short-- I don't know if we've ever seen a company as shorted as that, but all things considered here, I think a lot of these smart institutional short money is probably not touching any of these names right now because they know then they've got to come in at some point and cover, and you're just exposing yourself.