If GameStop (NYSE:GME) were an ordinary company, its second-quarter results released on Thursday should have been a triumph. Net sales of $1.16 billion represented a 2.5% increase from the previous year, and net losses were cut to a mere $2.8 million — a rounding error for a company that lost $50.5 million the quarter before. These are phenomenal figures for a business that sells shiny plastic discs to buyers who increasingly don’t need them.

But the Texas-based videogame retailer is no standard fare. Since 2020, meme investors have piled into the stock, hoping for shares to “go to the moon.” Activist investor Ryan Cohen had promised to bring “tremendous opportunities” to the struggling retailer, and for a while, it seemed like GameStop might succeed. The company would change its entire management team, invest in new technologies, and raise enough capital to make it happen.

That makes GameStop’s Q2 earnings particularly worrying, at least for lunar-bound investors. Recent results now paint a picture of a firm seeking to wind itself down, not build itself up. And though no one seems to admit it, even executive chairman Ryan Cohen appears to have given up on GameStop.

The 2020 Vision for GameStop…

Ryan Cohen’s 2020 open letter to GameStop’s board made perfect sense at the time. The gaming industry had been growing for years, attracting an increasingly older and wealthier crowd. Console games, a particularly lucrative sector, were on the rise. And GameStop seemed perfectly positioned to take advantage. The firm owned a household brand name, an enormous retail footprint, and 55 million PowerUp members. To an optimist — or an activist investor — GameStop’s management only needed to reach their hands out for the opportunity to land in them.

“GameStop’s challenges,” Mr. Cohen’s missive read in all-caps, “stem from internal intransigence and an unwillingness to rapidly embrace the digital economy.”

In an alternate reality, GameStop could have succeeded. Twitch, a game streaming service acquired by Amazon (NASDAQ:AMZN) in 2014 for $1 billion, is now worth anywhere from $10 billion to $45 billion. OpenSea, a privately owned NFT marketplace, was valued as high as $13 billion during the 2022 NFT boom; it’s still worth at least $3 billion today. And Electronic Arts (NASDAQ:EA), a major game developer, is now on track to earn $1 billion in net profits this year, its largest-ever single-year haul.

At first, GameStop made all the right moves. The company hired Matt Furlong, a rising star at Amazon, and tapped another former Amazon executive, Mike Recupero, as chief financial officer. The two would spearhead efforts into everything from NFT wallets to Web 3.0 gaming. A constant stream of upbeat news would keep meme investors involved.

…And the Reality Check of Q2 Earnings

Success, however, has proved challenging to achieve. The company spent months readying its NFT platform, only to launch it during the middle of a crypto winter. E-commerce sales have fared so poorly that the firm no longer reports it as a separate item. And in June of this year, the company unceremoniously fired Matt Furlong without even mentioning the former CEO by name.

The company’s second-quarter results now show these were not one-off decisions.

During the quarter, overhead expenses fell by 16.8%, a stunning drop for a company that relies on having knowledgeable sales associates to keep customers happy. Merchandise inventories were cut from $734 million to $677 million, and international sales were reduced.

Most worryingly, the company has stopped investing for growth. GameStop’s capital expenditure fell to $10.1 million for the quarter, well below the $48 million budgeted during Q2 2015 for store upkeep and improvements, and even below the $20.5 million figure Mr. Furlong allowed last year. Spending on consultants and hiring for Web 3.0 developers has also slowed or stopped entirely.

Meanwhile, corporate buzzwords are becoming more pronounced on GameStop’s reports. Terms like “focus on cost structure optimization” now dot quarterly filings, while mentions of a “strategic path” now refer more to “strategic and financial fit[s] to eliminate redundancies” than to expansion or new opportunities. (In plain English, GameStop is cutting back on everything it can).

These factors have real-world costs. Many of GameStop’s stores are now left with overworked employees, understocked shelves, and moldy carpeting, best described by 1-star Yelp reviews and gaming news reports. In August, the company abandoned its wallet app, citing “regulatory uncertainty of the crypto space.” And starting pay now starts so low that the firm has job openings for almost every store.

A New Managed Decline

It’s not the first time management has tried… and failed… to turn GameStop around.

In 2010, CEO J. Paul Raines helped GameStop acquire browser-based video game developer Kongregate within a month on the job. By 2011, the gaming firm had also bought cloud-based game distributor Impulse and online gaming firm Spawn Labs.

But the acquisitions proved impossible to digest. In 2014, GameStop shuttered Spawn Labs and Impulse in cost-cutting measures. And Raines’ retirement in 2017 would set the videogame retailer on a path of planned obsolescence. Between 2017 and 2020, GameStop’s management returned $1.02 billion to stakeholders in a combination of share repurchases, dividends, and bond buybacks.

Shrinking a dying firm isn’t necessarily bad, at least if you’re a shareholder. Sears saw a similar cash-out between 2005 and 2012 when management returned $6 billion to shareholders by cutting back on store upkeep (~$3 billion in savings), reducing inventory (~$800 million in savings), and shutting down stores. Though thousands of employees would lose their jobs, activist investor Eddie Lampert would reportedly walk away with $1.4 billion in profits.

Today, GameStop’s Ryan Cohen seems to be doing the same thing, even if he refuses to acknowledge it publicly. Cash is being conserved. Inventories are getting cut. The company now generates more profits from investing its cash holdings than it does from selling games. Experienced investors will have seen this story of managed decline before. And meme investors will soon experience firsthand what it’s like to own a company where its owners have finally given up.

As of this writing, Tom Yeung did not hold (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.