GameStop achieves its highest quarterly net profit in history, but nearly 70% of the profit comes from EBay derivative products' "paper gains"

Author: Claude, Deep Tide TechFlow

Deep Tide Guide: GameStop disclosed its Q1 fiscal year 2026 results, with a net profit of $389.6 million, hitting a record high in the company's history, and revenue increased 14% year-over-year to $835.3 million, both significantly exceeding Wall Street expectations. However, looking at the numbers closely, $268.4 million of the profit came from unrealized gains on options derivatives accumulated during the acquisition of eBay. On the same day, the board approved a $2 billion buyback plan, and the stock price rose over 7% after hours.

GameStop (NYSE: GME) released its Q1 FY2026 results after the market close on June 2, delivering the highest quarterly profit since the company's founding.

Net profit of $389.6 million, up 770% year-over-year; Q1 operating profit of $143.3 million, also setting a historical Q1 record, compared to a loss of $10.8 million in the same period last year. Revenue of $835.3 million, up 14%, exceeded analyst expectations of $767 million. Non-GAAP earnings per share of $0.30, nearly double the market consensus of $0.16.

According to Reuters and multiple media reports, after the announcement, GME's stock price rose over 12% in after-hours trading.

Nearly 70% of net profit comes from unrealized gains on eBay derivative positions

The $389.6 million net profit figure needs to be broken down.

According to the notes in the financial report, GameStop recorded $268.4 million in "unrealized gains on derivative assets" in Q1, originating from the company's establishment of put/call option positions (Put/Call Pairs) for the eBay acquisition. These derivatives provided economic exposure to eBay common stock, totaling approximately 34.5 million shares at the end of the quarter, with strike prices ranging from $84.74 to $114.96.

In other words, just this paper gain accounts for 68.9% of net profit.

Excluding unrealized derivative gains, gains from digital assets, impairments, and other non-recurring items, adjusted net profit was $179.3 million, up 115.8% (compared to $73.1 million last year). Adjusted EBITDA was $163.4 million, compared to only $38.6 million in the same period last year.

This derivative gain is directly related to GameStop's ongoing eBay acquisition plan. On May 3, GameStop submitted a non-binding offer to eBay's board at $125 per share, with a total valuation of about $55.5 billion, paid 50% in cash and 50% in stock. GameStop has accumulated approximately 6.5% economic exposure to eBay through derivatives and direct holdings and has submitted antitrust filings. eBay previously rejected this proposal.

The company pledged $983.3 million in cash as collateral for the derivatives, recorded under "Pledged Derivative Collateral" on the balance sheet.

Collectibles surpass hardware as the largest revenue source for the first time

In terms of core business, the most significant structural change in Q1 was that collectibles (Collectibles) overtook hardware to become GameStop's largest revenue source.

By category: collectibles revenue was $348.9 million, accounting for 41.8%, up 64.9% year-over-year (compared to $211.5 million, 28.9% last year); hardware and accessories $333.7 million, accounting for 39.9%, down 3.4%; software $152.7 million, accounting for 18.3%, down 13.0%.

Revenue growth was almost entirely driven by collectibles, including apparel, toys, trading cards, and card grading services. This continues GameStop's transition over the past two years from a traditional game retailer to a retail platform for trendy collectibles and trading cards.

Gross margin increased from 34.5% last year to 40.7%, and SG&A expenses decreased from $228.1 million to $201.6 million, an 11.6% reduction.

$9.7 billion "financialized" balance sheet: cash, Bitcoin, convertible bonds, and derivatives

As of the end of Q1, GameStop's on-balance-sheet cash, cash equivalents, and marketable securities totaled $8.4 billion (compared to $6.4 billion last year), digital assets and related receivables about $400 million (4,710 Bitcoin), derivative collateral approximately $1 billion, totaling about $9.7 billion.

The company's market capitalization is approximately $9.4 billion, with liquid assets on the books exceeding the market cap.

On the liabilities side, long-term debt increased from $1.48 billion last year to $4.17B. This mainly stems from GameStop issuing two tranches of zero-coupon convertible bonds: $1.5 billion issued in April 2025 due in 2030, and an additional $2.25 billion due in 2032. Both notes explicitly include uses such as purchasing Bitcoin, following a "debt-for-crypto" strategy similar to Strategy (formerly MicroStrategy).

GameStop currently holds 4,710 Bitcoin, valued at approximately $384 million according to The Block data, ranking 11th among publicly listed companies' Bitcoin holdings worldwide. The Q4 financial report disclosed that the company pledged 4,709 Bitcoin as collateral for covered call strategies.

$2 billion buyback plan and after-hours stock reaction

On the same day, the GameStop board unanimously approved a $2 billion share repurchase authorization, valid until June 2, 2029, replacing the previous authorization established in March 2019.

With a current market cap of about $9.4 billion, the $2 billion buyback represents roughly 21.3% of total market value. Considering the company's $8.4 billion cash reserves, the buyback is financially feasible.

According to Stocktwits and multiple media reports, after the earnings release, GME's stock price increased by 7% to 12% in after-hours trading. During the regular trading session, GME closed at approximately $22.40, with a 52-week trading range of $19.93 to $31.05.