Is a VC acquisition, shift toward E-Commerce and launch of new products like the PS5 enough to save GameStop?
What’s the Deal with GameStop?
The last decade has been marked by pivotal changes in retail, entertainment and gaming. GameStop, the world’s largest video game retailer, falls squarely at the intersection of these aforementioned industries.
GameStop has become a regular staple on our Bullish Ripper, a shortlist of stocks making significant moves on markets. But GameStop, which trades under $GME, has lost some of its allure in a distinctly digital-first economy for gaming and entertainment.
What’s Fueling this Growth?
Investment firm RC Ventures bought a significant stake in GameStop back in August this year. The firm, managed by Chewy co-founder Ryan Cohen, acquired over 9% of GameStop. This move made RC Ventures the single largest shareholder in the company. Cohen, being an enterprising e-commerce entrepreneur, shared his vision for the future of the company — turning GameStop into an e-commerce player to rival Amazon. This sent shares of the company climbing for the first time in years. Since the start of 2020, shares of $GME have nearly doubled.
Though the plan sounds simple, saving this dinosaur will be no small feat. Seven years ago, the company was pulling down record revenues. The stock was at a relative all-time high. However, in recent years, their store experience became the topic of great revulsion among shoppers. Their business had some novelties. For example, there is no other place you can trade in used games and consoles and get cash immediately. But even these novelties have had shortcomings. If you ever want to kill time, I recommend reading GameStop reviews on Google or Trustpilot (with 86% of ratings marked as “bad”).
The insistence of traditional retail companies to avoid changing their business model has been a leading reason why large brick and mortar franchises like RadioShack and Hhgregg have shuttered in the last few years. GameStop was no different. Shares of the retail giant have tumbled over the last few years, and revenue has dried up as digital competition has encroached on their territory. GameStop’s story is a microcosm of a larger, all-too-familiar theme — the rise of digital shopping & e-commerce. In 2018, the company reported a whopping $700 million loss.
Knowing that they’ve overbuilt, the company announced a plan to lay off thousands and close stores as a cost-cutting measure in August 2019. This provided a temporary boost to the stock. However, layoffs and store closures alone would still be grossly insufficient to salvage the company. The old way of doing things is no longer going to get it done, and GameStop CEO George Sherman conceded that change would be necessary, in an interview with CNN Business that “gaming as an industry could not be stronger, it’s us that needs to pivot.”
What is GameStop Doing Now?
So far, GameStop did ink a surprise partnership with Microsoft in October, which will entitle them to revenue sharing from Xbox’s digital revenues. In November, the company announced it would pay off over 63% of its outstanding debt ahead of schedule — a sign they’re prioritizing the organization’s financial health.
With the stock up over 84% YTD as of Nov. 11, it’s hard to tell how much growth opportunity is left in this battered retailer. GameStop is a ship with a hole in the bottom, and it has been taking on water for years. Other former retail giants like Sears, Toys ‘R Us and JCPenny all sank. If the company does manage to pull off its lofty goals and build a viable future-proof brand, it would represent a massive win. Nevertheless, investors shouldn’t ignore the possibility that GameStop’s ship might be beyond repair and sinking to the bottom of the ocean soon.