GameStop shares - investment in a "mem company" [Guide]

GameStop is a company that has recently enjoyed above-average interest, especially in the American community Finwit, Reddit i @wallstreetbets (WSB). Many commentators believe GameStop (#GME) for "company - meme". The idea behind the community in the form of "finishing" the funds playing under the scenario of a significant decline in the value of #GME shares attracted a large number of retail speculators. This resulted in above-average volatility in the company's stock price. But what is GameStop? What's his story? What are the prospects? In this article, we will focus not on media reports and investors' emotions, but on the dry facts related to the company's operations.

The beginnings of GameStop

The history of the company dates back to 1984, when it was founded by two Harvard Business School graduates. They were it James McCurry i Gary M. Kusin. Initially, the company was called Babbage's. The company started operating as a software vendor. After raising capital (thanks to an investment by Ross Perot), the company changed its activities and focused on selling video games. Games for Nintendo hardware hit stores in 1987. A year later, the company debuted on the stock exchange. As a result of the change in the business model, as early as 1991, two-thirds of revenues were generated by the video games segment. In 1999, the GameStop brand was launched, selling games and gaming accessories in 30 stores. The online store gamestop.com was also introduced during the dotcom mania. That same year, Babbage's was acquired by Barnes & Noble Booksellers for $ 215 million. During the year, the acquired company was merged with another subsidiary of Barnes & Noble Booksellers - Funco. 

Soon after, the merged subsidiaries debuted on the stock exchange under the name GameStop. In 2005, the company acquired EB Games for $ 1,44 billion, which allowed for foreign expansion in the region of Europe, Australia, New Zealand and Canada. In the following years, GameStop grew both organically and through acquisitions. A French game retailer was on the shopping list Micromania or a video game producer - Jolt Online Gaming. In 2013, it was acquired SpringMobile - a network of stores with smartphones. In 2016, the company already had 1500 stores under this name. The years 2012-2016 were a "golden period" for the company. Revenues in these years fluctuated around $ 9 - 9,5 billion. In turn, annually, the company generated approximately $ 600 million in operating profit. The company seemed to be a stable company with a strong, recognizable brand. That was about to change soon.

End of Eldorado

However, the Eldorado came to an end as a result of a change in consumer habits. More and more games were purchased through platforms such as Steam, Xbox Live, PlayStation Network or Nintendo Shop. The information about the introduction by Microsoft also did not help "Game Pass". Consumers have been buying fewer and fewer physical games and choosing their digital versions.

As a result, traffic in stores began to shrink. The decrease in the number of customers resulted in a decrease in turnover. Already in the summer of 2017, sales fell by 16% y / y. The company hoped, however, that sales of "non-boxed" games would more than cover sales of "traditional games".

Market changes worsened the company's situation. As a result, the company had to cut costs and restructure its operations. In 2017, plans were announced to reduce the number of stores by 150. Failed investments got rid of. In 2018, Spring Mobile was sold for $ 800 million to Prime Communications. It is worth adding that a few years ago GamStop acquired Spring Mobile for $ 1,5 billion. Before the acquisition of GameStop, he was debt-free and generated $ 400 million in cash. After the sale of Spring Stop, the company had $ 800 million in debt and generated $ 300 million in cash.

GameStop was also looking for external financing as it needed funds to transform the business. In 2019, advanced talks with Sycamore Partners continued. However, no binding contract was signed. In fiscal 2019 (ending February 2019), the company reported a net loss of $ 673 million. In early 2020, analysts were of the opinion that GameStop is a melting ice cube. Business still has some value, but things were going to get worse over the years.

Turnaround

Michael Burry

The company was in trouble, but there were investors who became interested in the company. An example was Michael Burrywho was one of the heroes Big Shorts (made money from subprime bubble burst). In August 2019, he wrote to the Board of GameStop demanding a share buyback to take advantage of the low prices to buy shares below their intrinsic value. In December 2019, GameStop announced plans to buy back 34,6 million of the company's shares (less than 35% of the company's shares). He was to allocate about $ 180 ml for this purpose. So it was a company with a Graham cigarette butt patch (from cigar butt).

However, the company found itself on the radar of an investor who wanted to change the outdated business model. That someone he was Ryan cohen, which began to increase shares in the company. In August 2019, the entity he controls, RC Ventures, announced that it held 9% of shares in the company.

Ryan cohen

Ryan Cohen was the CEO and co-founder Chewywhich is one of the market leaders in selling pet products via the Internet. In 2017, Chewy was acquired for over $ 3 billion by PetSmart. For this reason, it is included in the famous "forty under forty" list. Becoming one of the largest shareholders of the company, he began to change the business model. He became a member of the supervisory board and began to change the managerial staff. In the first quarter of 2021, Elliott Wilke became the new CGO (Chief Growth Officer), who worked for 8 years in various managerial positions in Amazon (including as Director Amazon Fresh Stores).

Another person to be changed is Jenna Owens, who was hired as COO (Chief Operating Officer). Previously, she worked in managerial positions at Amazon, Google and McKinsey.

It is also worth mentioning that changing the company's development requires a new perspective on technological problems. For this reason Matt Francis became the new CTO (Chief Technology Officer). His previous employer was AWS (Amazon division). In 2018 - 2020 he worked as CTO at Flyhomes.

In addition to the management changes, Ryan Cohen was aware that the traditional sales model (bricks-and-mortar) needs to be refreshed. It is impossible to reverse the trend of increasing the attractiveness of e-commerce. For this reason, you should close the least profitable brick-and-mortar stores and look for opportunities in the e-commerce market. For this reason, GameStop is to start improving the quality of its online offer and looking for additional sales in segments such as e-sports, mobile games and game streaming.

In November 2020, Ryan Cohen published a letter in which he marked his vision of development. He also noted that GameStop in previous years did not keep up with market changes, which include:

• switching from selling digital streaming equipment,
• development of the mobile market,
• the transition from selling through brick-and-mortar stores to online retailers.

For this reason, company executives need to move from traditional vendor thinking to a digital sales vision. Such solutions require a number of proceedings from the company. Among them:

• Store closings staggered over time. The average lease termination period is 24 months. This time should be spent identifying duplicating or poorly operating stores. They are to be closed to save cash.
• Cash savings can be used to develop online sales, which is to be the main engine of growth in the coming years.
• Activities outside the United States are to be restricted to make better use of the company's capital. Foreign assets can either be restructured or sold. 
• In the coming years, the company will benefit from a console cycle that will generate better sales thanks to, among others, stronger demand for hardware and new games.

It is also worth remembering that the company has also changed the positions of CEO and CFO. In June 2021, the current CEO, George Sherman, was replaced by Matt Furlong, who had served as Country Leader at Amazon Australia for the previous two years.

At the same time, Mike Recupero, who worked for 17 years at Amazon, also changed to the position of Vice President and CFO in the North America Consumer cell. Previously, Mike served as Vice President and CFO of Amazon Prime Video.

As you can see, the company hired people with extensive work experience in some of the best companies in the United States. This may contribute to a change in the organizational culture, which will increase the effectiveness of the company's transformation.

Where to Invest in GameStop Stocks (#GME)

Below is a list of selected offers Forex brokers offering an extensive share offer, including the shares of the GameStop company (#GME).

Broker
End	Poland	Denmark	Poland
Shares on offer	approx. 3500 - shares approx. 2000 - CFDs on stocks 16 exchanges	19 - shares 8 - CFDs on stocks 37 exchanges	approx. 1 - stocks + CFDs on stocks 5 exchanges
Min. Deposit	PLN 0 (recommended min. PLN 2000 or USD 500, EUR)	0 PLN / 0 EUR / 0 USD	PLN 0
Platform	xStation	SaxoTrader Pro Saxo Trader Go	MetaTrader 5
	REVIEW	REVIEW	REVIEW
	CREATE AN ACCOUNT	CREATE AN ACCOUNT	CREATE AN ACCOUNT

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.

GameStop: Finance and Prospects

The action of squeezing short positions caused a sharp increase in the company's capitalization. In August 2020, the company's capitalization did not exceed $ 400 million. After a successful squeeze of short sellers, April market capitalization exceeded $ 12bn. The company used the increase in popularity to raise additional capital. As a result, the April issue of shares brought the company about USD 0,5 billion (3,5 million shares were sold). The additional capital is expected to help in faster transformation and the beginning of gaining a larger share in the e-commerce market. At the end of January 2021, GameStop had 4 stores, of which 816 in the USA, 3 in Canada, 192 in Australia and 954 in Europe.

In June, the company published a report for the quarter ending May 2021 (IQ 2022 FY). The company's revenues amounted to $ 1,2 billion, which meant an increase of less than 20% y / y. The operating loss was also reduced from $ -108 million to $ -41 million. The net loss was about $ 100 million lower than a year earlier and amounted to-$ 67 million. On the other hand, free cash flow was $ -33 million. As you can see, the company is still at the beginning of changing its business model. However, the company's capitalization has already priced in the significant realization of the positive scenario. Currently, the company is valued at $ 15,8 billion.

GameStop chart, D1 interval. Source: xNUMX XTB.

In summary, speculation on GameStop shares allowed the company to raise an additional $ 500 million to transform the business. However, it should be remembered that the current valuation is already discounting the considerable success of the company. This one is not sure. On the other hand, organizational changes in the company and the employment of experienced managers may allow for a successful change of the business model.