Stock Market Today: Why GameStop Slumped and Autodesk Soared

By Markets Fool.com

Volatility returned to the stock market today as indexes lurched between significant gains and losses. On Friday the Dow Jones Industrial Average(DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC)each closed down slightly as investors digested fresh economic data and new information on the Federal Reserve's interest rate posture.

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Today's stock market:

Index

Percentage Change

Point Change

Dow

(0.29%)

(51)

S&P 500

(0.16%)

(3)

Data source: Yahoo! Finance.

The major economic news of the day was a speech by Federal Reserve Chair Janet Yellen, who noted that improving job growth figures and low inflation set the groundwork for another interest rate hike. "I believe the case for an increase in the federal funds rate has strengthened in recent months," Yellen said. The Fed will next have a chance to raise rates in its monetary policy meeting that ends on Sept. 21.

Individual stocks on the move included GameStop (NYSE: GME) and Autodesk (NASDAQ: ADSK).

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GameStop loses a life

GameStop shares plunged after the company missed management's second-quarter growth forecast on surprising weakness in the video game market. Hardware sales slumped 35% lower as device manufacturers began talking up future gaming releases. At the same time, a weaker launch calendar depressed new video game sales down by 18%.

Batman: Arkham Knight was a big hit in last year's Q2, but the lack of a comparable blockbuster pushed game sales down. Image source: Time Warner.

Overall, GameStop's comparable-store sales fell 11%, against management's forecast of a 6% drop. CEO Paul Raines said in a press release that fiscal Q2 was "a tough quarter for video gaming" as the retailer lowered its full-year comps outlook to a 5% drop from the 2% decline it projected in late May.

New business lines, including mobile and consumer technology, are still growing at a healthy pace and producing much higher margins than GameStop's legacy video game business. As a result, profitability and net income both logged strong gains this quarter despite the revenue drop. That success has set up an interesting dynamic whereby the retailer's earnings set record highs even as the stock price sinks on bearish bets from investors. Friday's results, since they included hefty losses on the video game side -- but also strong overall profit gains -- didn't do much to settle the debate over whether GameStop is a solid deal right now or on its way into retailing oblivion.

Autodesk's healthy subscriber growth

Autodesk was the S&P 500's best performer on Friday following its second-quarter earnings announcement. The computer-aided drawing specialist beat consensus estimates on both the top and bottom lines thanks to enthusiastic adoption of its software suites. Subscriptions rose to 2.8 million, up 109,000 from the prior quarter. Gross margin held steady at 85% of sales.

Image source: Getty Images.

Overall revenue fell by 10%, but that's mostly by consequence of Autodesk's switch away from one-time purchases and toward a cloud-based subscription model. "We posted terrific second quarter results driven by growth in new model subscriptions, the end of perpetual license sales, and diligent cost control," CEO Carl Bass said in a press release.

Investors can expect revenue to continue to decline as Autodesk books all future business on a subscription basis, which produces lower initial sales prices. In that context, a key metric to follow as a reflection of the health of the business is subscriber growth. Autodesk said that it expects to add about 500,000 new subscriptions during the year. Management also believes the current momentum supports their target of 20% compound annual subscriber growth through fiscal 2020. With a 23% jump in deferred revenue this quarter, that expansion pace seems achievable -- at least over the short term.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool has the following options: short October 2016 $28 puts on GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.