• GameStop’s (GME) fourth-quarter results show mounting losses, but with plenty of positives.
• CEO Matt Furlong admits the company’s inability to adapt to the future of gaming.
• Despite an improved showing during the quarter, GME stock is far from being a safe bet.

GameStop (NYSE:GME) never ceases to amaze. The beleaguered video game retailer beat top-line estimates for the fourth quarter and counteracted the negative secular trends in its software sales. Nevertheless, its operating expenses outpaced its top-line growth by a hefty margin, spoiling what was otherwise an interesting quarter for GME stock.

GameStop was the ‘original meme-stock.’ Its shares surged to unfathomable heights early last year before shedding most of those gains in subsequent months. Nevertheless, those looking for long-term value with the company found nothing.

Several analysts, including myself, have talked about the inability of GameStop to stay abreast with the step-changes in the gaming industry. However, in its most recent quarter, the top-tier management is finally taking notice.

Do these positive developments justify GME stock’s lofty valuation? The answer to that is an emphatic “NO!” One could argue that GameStop is looking to climb its way back in the gaming business. However, to say it could return to past glory is far-fetched.

Mounting Losses

GameStop generated $2.25 billion in sales during the fourth quarter, up roughly 6% from last year. Growth, however, came at a sizeable cost as its selling, general, and administrative expenses shot up 29%. The massive bump in expenses took the company operating loss to $166.8 million against an $18.8 million profit in the previous year.

Moreover, on a non-GAAP basis, its adjusted EBITDA loss came in at $126.9 million, compared with a $50.3 million profit from the prior-year quarter. Additionally, cash flow from operations was also negative, at $110 million from a positive $164.8 million in the fourth quarter of 2020. Frustratingly, the company didn’t provide any outlook either.

Furthermore, stock-based compensation increased from $2 billion to $10 million. The bump seems way out of line, considering how tough it has been for the company from a fundamental perspective. However, with such a volatile stock, the compensation makes some sense in retaining the company’s executive talent.

Plenty Of Bright Spots

The operational loss was disheartening, but there were still a lot of positives to take from the fourth quarter. It was the first time the company management talked about its past mistakes. Chief Executive Officer (CEO) Matt Furlong states that “we have learned from the mistakes of the past decade when GameStop failed to adapt to the future of gaming.” That admission has been a long time coming, which could potentially steer the business in a new direction.

Perhaps the most encouraging development during the quarter was that software sales grew a healthy 7%. Software sales outpaced hardware sales, which grew by just 2%. Moreover, partnerships with PC gaming companies such as Lenovo and Alienware helped grow PC gaming revenues by 150% for the year.

Furthermore, GameStop confirmed the launch of its much-talked-about non fungible token (NFT) marketplace in the second quarter. CEO Furlong sees massive long-term potential in a $40 billion NFT market. Embracing the digital world and its unique offerings will only pay more dividends for the business in the future.

Additionally, the company has built a staggering war chest, which includes $1.2 billion in net cash. Despite what the bears may say about its valuation, its enormous cash balance provides wiggle room for the business. Moreover, it can now push on and invest in new growth avenues for expansion.

Is GME Stock a Buy?

GameStop and other meme stocks soared to ridiculous heights last year and have fortified their balance sheets. GameStop, in particular, paid most of its debt and will raise more cash this year. It has plenty of cushion to explore new revenue opportunities and become a different company down the line.

However, there are a lot of ifs and buts to its comeback story, which still make GME stock a tough long-term bet. It is still an attractive short-term play, though, as the Reddit chatter will continue being a factor in its price. It will be interesting to see how the new U.S. Securities and Exchange proposals impact short squeezes. I suspect a negative impact on future short squeezes if these regulations come into play.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines