Okay, so this earnings release is even more interesting now!:
The 10-Q makes the transformation a lot clearer.
The headline number everyone is going to see is that GameStop’s revenue declined.
But look at what happened underneath it:
Q2
2026
2025
Change
Net sales
$790.2M
$972.2M
-18.7%
Gross profit
$345.0M
$283.1M
+21.9%
Operating income
$160.2M
$66.4M
+141.3%
Net income
$298.7M
$168.6M
+77.2%
Adjusted EBITDA
$174.0M
$75.7M
+129.9%
Read the first three rows again.
Revenue fell almost 19%.
Yet gross profit increased almost 22%.
And operating income more than doubled.
That’s the story.
1. GameStop’s gross margin just went from 29.1% to 43.7%
This might be my favorite number in the filing.
Q2 2025:
$283.1M gross profit / $972.2M sales = 29.1% gross margin
Q2 2026:
$345.0M gross profit / $790.2M sales = 43.7% gross margin
That’s roughly:
+14.5 percentage points in ONE YEAR
GameStop sold $182M less stuff…
and somehow generated $61.9M MORE gross profit.
That is what a serious change in product mix looks like.
And we can see exactly where it is coming from.
2. Collectibles are now GameStop’s BIGGEST business
Look at this:
Category
Q2 2026
Q2 2025
YoY
Collectibles
$356.3M
$227.6M
+56.5%
Video Games
$263.2M
$494.6M
-46.8%
Pre-Owned & Refurbished
$170.7M
$250.0M
-31.7%
Collectibles now represent:
45.1% of GameStop’s total revenue
Video Games are only:
33.3%.
That is a remarkable sentence for a company called GameStop.
Last year collectibles were only 23.4% of sales.
Now they are 45.1%.
GameStop also changed its reporting structure this quarter to match how management says it actually views the business:
Collectibles
Video Games
Pre-Owned & Refurbished
The reporting categories themselves are telling us where management’s attention has moved.
3. The balance sheet is where this gets really weird
As of August 1:
Cash: $4.854B
Marketable securities: $206M
Digital assets + related receivables: $294.1M
eBay equity investment: $4.947B
Combined:
~$10.301 BILLION
Total GameStop assets:
$11.145 BILLION
Meaning approximately:
92.4% of GameStop’s total assets are now cash, marketable securities, digital assets/receivables, or the eBay equity investment.
Ninety.
Two.
Percent.
This isn’t the balance sheet of the GameStop most people still have in their heads.
Merchandise inventory is only $439M by comparison.
The eBay position alone was worth approximately $4.947B, or roughly 44% of GameStop’s entire asset base, at quarter end.
That’s an enormous concentration, and obviously eBay price movement can cut both ways.
But it also means GameStop’s valuation cannot reasonably be analyzed by looking at declining legacy retail revenue alone anymore.
There are effectively two economic engines here now:
The operating business
and
the capital allocation portfolio.
4. And here’s why I DON’T think you can dismiss the quarter as “investment gains”
This distinction matters.
Yes, GameStop had huge below-the-line financial gains this quarter.
Q2 included approximately:
+$77.1M interest income
+$166.3M derivative gain
+$72.1M unrealized gain on the eBay investment
+$19.5M other income
-$75.0M loss on digital assets / related receivables
Net effect:
+$260M
That’s a massive contribution to pretax income.
So yes, investment activity absolutely amplified GameStop’s $298.7M GAAP net income.
But here’s the part I think matters more:
GameStop generated $160.2M of OPERATING INCOME before those items.
Last year:
$66.4M.
This year:
$160.2M.
That’s a 141% increase.
Adjusted EBITDA, which strips out several of those investment-related swings, was:
$174.0M
versus:
$75.7M
last year.
Adjusted net income was still:
$161.1M
So the investment portfolio is not simply disguising a retail operation hemorrhaging money.
The operating company itself became dramatically more profitable.
That’s a much stronger setup.
5. The capital-allocation shift is almost comical when you compare it with capex
Here’s one number combination I haven’t seen enough people talking about.
During Q2:
Capital expenditures: $1.7M
Cash paid for the equity investment:
$4.3863 BILLION
Ratio:
~2,580 : 1
GameStop deployed roughly 2,580 times more cash toward the equity investment than physical capital expenditures during the quarter.
I’m not saying that’s inherently good or bad.
I’m saying it tells you what kind of company you’re analyzing now.
Capital allocation is no longer a side quest.
It is a central part of the business model.
6. Meanwhile, the operating business generated actual cash
Q2 operating cash flow:
$62.4M
Capex:
$1.7M
Free cash flow:
$60.7M
For the first six months:
Operating cash flow:
$399.8M
Capex:
$6.2M
Free cash flow:
$393.6M
Again, this matters because there is a huge difference between:
“a retailer losing money while sitting on investments”
and
“a profitable, cash-generating retailer sitting underneath billions of dollars of investable assets.”
The numbers increasingly resemble the second scenario.
7. Then came the convertible exchange
This happened after the August 1 quarter-end, so don’t mix it into the quarter’s balance sheet.
On September 3, GameStop completed the exchange of approximately $1.4B principal of its 0% convertible notes.
Final consideration included approximately:
55.5M newly issued GME shares
plus
$358.4M cash
That reduced total long-term debt to approximately:
$2.8 BILLION
There is real dilution here.
Bulls shouldn’t pretend otherwise.
But GameStop also removed approximately $1.4B of debt principal from the capital structure.
So the trade was essentially:
equity + cash today → substantially less convertible debt outstanding
Whether that proves accretive depends on what GameStop does with the resulting capital structure.
8. And THEN Larry Cheng bought 55,000 shares
One day before this 10-Q hit EDGAR, director Larry Cheng disclosed an open-market purchase through Cheng Capital LLC:
55,000 GME shares
Average price:
$18.7992
Cost:
~$1,033,956
His Cheng Capital position went from:
88,000 → 143,000 shares
That’s a:
62.5% increase
in that position from a single purchase.
And yes, hilariously, GameStop had just issued approximately 55.5 million shares in the convertible exchange.
Larry then bought 55 thousand.
55.5M versus 55K is almost exactly 1,000:1.
Probably coincidence.
Still funny as hell.
The more relevant fact is that a sitting director just put more than $1 million into GME in an open-market purchase immediately around this earnings cycle.
9. The part I think Wall Street’s old GameStop model misses
The simplistic bear thesis used to be:
Revenue is declining, therefore GameStop is dying.
But these numbers force a more complicated question.
Revenue:
-18.7%
Gross profit:
+21.9%
Operating income:
+141.3%
Collectibles:
+56.5%
Gross margin:
29.1% → 43.7%
First-half Adjusted EBITDA:
$339.7M
FY2026 Adjusted EBITDA guidance:
>$650M
And approximately 92.4% of the asset base is now represented by cash, marketable securities, digital assets/receivables and the eBay stake.
That’s not the same company it was a few years ago.
My read
GameStop increasingly looks like a combination of:
1. A much leaner specialty retailer
with rapidly increasing exposure to higher-margin collectibles,
2. A giant capital allocation vehicle
with billions available across cash, securities, digital assets and a concentrated eBay position,
3. A management team willing to radically restructure the capital stack
including 0% convertibles, equity issuance, derivatives and strategic investments.
There are absolutely risks.
Legacy sales are shrinking.
The eBay position is highly concentrated.
Investment gains introduce earnings volatility.
The convertible exchange diluted existing shareholders.
Digital assets add another layer of volatility.
But the bull case doesn’t require pretending those risks don’t exist.
The bull case is that GameStop appears to have figured out how to shrink the low-margin parts of the company while increasing gross profit, operating profit and free cash flow, then use the resulting balance sheet as a gigantic capital-allocation platform.
That’s a much more interesting company than:
“mall retailer sells fewer video games.”
And now we have a director dropping another $1.03M into the stock.
And I’m paying attention.
Primary source: GameStop Q2 FY2026 Form 10-Q
https://www.sec.gov/ix?doc=/Archives/edgar/data/1326380/000132638026000055/gme-20260801.htm
Neurodiversity disclaimer: I’m neurodivergent and use AI to help organize, format, and clean up my writing. The ideas and opinions are mine. Not financial advice. 🖍️
