Quote:
Originally Posted by BishopMVP
This Forbes article[/url] does a nice job explaining that part of it, though I disagree with the author's contention that Gamestop is a mediocre, money-losing business (it *was* a mediocre, money losing business)
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Without going after the rest of your post, because a lot of that is frankly over my head, nothing about the last two months has changed the nature of GameStop's business.
The Chewy dude may yet drag them into the 21st century and reinvent GameStop as a corporation which is NOT a mediocre, money-losing business, but as things currently stand?
Their revenue stream is heavily dependent on the trade in of physical media, which is something that's going to continue to shrink as digital takes over in the console space.
Lookit PC gaming. You just don't see physical media anymore. Many prebuilt rigs don't even ship with an optical drive.
Consoles ain't there yet, but that's where they're trending, and Microsoft and Sony both would cut those ties today if they could.
So that's where GameStop is sitting right now. They get a revenue boost from new hardware, but that's something that really only happens every 5-7 years, and that ALSO implies that the hardware is available for people to buy.
Physical software is a thing, for now, but it's taking up progressively less shelf space, and less new physical software being sold translates into less physical software being traded in where they can make margin on second, third, and fourth sales.
And you don't even have to look at the software to see how GameStop has tried to combat that in the last several years. Walk into any GameStop - the shelf space devoted to games has shrunk, while the shelf space devoted to collectibles of various sorts has grown. Hell, games which are ostensibly on sale are frequently just not available to purchase. But if you want to buy Funko Pops, board games, or Pokémon cards, have at thee.
They've been dinged by the pandemic, and while that doesn't have to be their death knell, the pandemic HAS driven other retailers from malls around the country, and empty space in malls is less foot traffic to walk past a GameStop.
Nothing that's happened since December changes any of that. What their future looks like may have changed, but they haven't really talked about what that future looks like in anything but the most nebulous terms.
So, yes, they're still a mediocre, money-losing business. But they're a mediocre, money-losing business with the prospect of a potentially visionary CEO shepherding them to whatever they need to become, and a foundering stock price that has been sent "to the moon" for reasons unrelated to the fundamentals of their business.
It is, if they grab onto it, a lifeline nobody could have seen coming. They can issue additional stock, use that money to pay down debt or fund the coming transformation, and be in a much stronger position in 3-5 years than they are now.
They're not swirling the toilet the way Fry's apparently was, but that's what "mediocre" means. They're "blah," not Dead Corp Corp'ing.
But they have an opportunity most companies in their position never get. If you look at Toys R Us, what happened to them was a venture capitalist firm came along, took them private, saddled them with additional debt while extracting what value it could from the company, and then spun them off again and said "good luck."
And that's the sort of fate which might have awaited GameStop in their current state. Hell, might still do, if they don't grab this opportunity with both hands.
And the forces driving their stock prices are completely separate from that reality. The stock may have hundreds, or thousands, of dollars in growth still in it based on the forces fighting over it. That's legit. I won't argue that because I don't, frankly, understand those forces. But the forces driving the stock up aren't using the underlying fundamentals as the basis. The institutional investors they keep steamrolling? Yeah, those folks are going "no way the stock should be this high just on fundamentals; the retail plebes have to run out of money EVENTUALLY" and just doubling and tripling down.
But the investors who have lined up on #TeamGameStop wouldn't be bidding the stock up to $140, $180, $200, $300 ($800? $1000?) if they were being driven by GameStop's business fundamentals.