GameStop surges after board changes — the fate of the decade-long struggling stock rests on Ryan Cohen - The Average Joe

    GameStop surges after board changes — the fate of the decade-long struggling stock rests on Ryan Cohen

    Victor Lei — Head of Research

    January 19, 2021

    January 19, 2021

    이상혁 joins the game — GameStop’s stock surges.

    GameStop’s stock jumped nearly 100% after releasing holiday sales numbers and announcing a big change to its board:

    • Sales fell 3.1% but digital sales increased 309% in the 9-week holiday period compared to last year.
    • Added new board members including Ryan Cohen and two former Chewy executives.

    GameStop levels down

    Over the past 7 years, GameStop’s stock had steadily fallen over 92%. One man decided to give GameStop an extra life… In 2020, Ryan Cohen, who founded and sold Chewy.com for $3.1b, took a 9% stake in GameStop — later increasing its stake to 13%.

    Alongside Cohen, the two other Chewy execs bring deep expertise in e-commerce, online marketing and finance — refocusing GameStop towards e-commerce.

    GameStop had also benefited from a big 2020 holiday season with two new console releases — Sony’s Playstation 5 and Microsoft’s Xbox Series X.

    How does console releases impact its stock? In 2013, when the older consoles, PS4 and Xbox One, were released — Gamestop’s stock had peaked right as the new consoles came out before falling 92% over the next 7 years.

    Even the release of new consoles couldn’t save GameStop — who barely makes any profit on console sales.

    The economics of console systems

    With a manufacturing cost of $450 and a selling price of $499, not even the manufacturer, Sony, makes much money on the console — instead, they make their money on game sales. For the distributor, GameStop…

    • Profits from console sales are tiny.
    • Game sales are being cannibalized by console makers.

    Sony and Microsoft are pushing consumers towards purchasing games digitally via online stores on the console. Game distributors are also being disrupted by new business models in the video game industry:

    • Sony and Microsoft are pushing players to join their “Netflix for games” like service.
    • Amazon and Google launched their own cloud gaming subscription service in the past two years.

    GameStop’s playing with a big handicap when it comes to competing against the largest tech giants.

    For investors… Can 3 people save GameStop?

    With the level of expertise amongst the former Chewy execs, It’s possible but it’ll take more than a focus on e-commerce:

    • Expand beyond games sales — which are becoming increasingly digital and competitive.
    • Find a use for its 5,000 physical retail locations — which could become a burden as they expand into e-commerce.

    Sales have fallen 29% over the past year and COVID lockdowns, which benefited the gaming industry, could be coming to an end.

    Business turnarounds take a long time and are incredibly difficult to execute. If Cohen can pull this off, and it’s a big if, GameStop could finally reverse its decade-long decline.

    Learn more: These are the two things GameStop is lacking to become a successful company…

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