GameStop has been making headlines recently as the company faces financial challenges and questions about its future direction. The fiscal first-quarter results included a $32.3 million loss on revenue of $882 million, following a $50.5 million loss on revenue of $1.2 billion the previous year. These figures reflect the ongoing structural changes in the video gaming industry, such as the switch to digital downloads, competition from streaming platforms, and an aging console gaming base.
Retail expert and investor Jeff Macke believes it’s time for GameStop to transition away from its struggling retail operations and reinvent itself as a holding company. Macke recalls owning GameStop stock five years ago when it was trading at $4 a share, considering its operations undervalued at the time. He later sold the stock for $25 a share, feeling quite accomplished.
Nonetheless, recent developments have raised questions about GameStop’s identity under Ryan Cohen’s leadership. C-suite executives have been exiting over the past two years, contributing to uncertainty about the company’s future. GameStop also lacks sell-side research coverage on Wall Street due to the stock’s volatility and Cohen’s secrecy regarding his plans for the company.
Despite the challenges, GameStop promoter Keith “Roaring Kitty” Gill has continued to support the company, most recently causing a temporary spike in its shares. GameStop has leveraged this renewed interest to bolster its cash reserves, raising $2.1 billion and $933 million through new share sales over recent weeks. Investment experts like Macke are curious about Cohen’s next steps with this capital.
Gamestop’s uncertain future direction
Potential strategies include acquiring other companies, investing in Treasuries, or individual stocks. Such maneuvers suggest a shift towards an asset management or holding company model rather than a focus on retail store experiences.
Macke argues that investing in physical stores, especially those in dead malls with outdated merchandise, is not ideal. He envisions GameStop transitioning to a holding company format, similar to another holding company transformation success story. “With $3 billion to $4 billion in cash, the challenge is finding the best way to put that to work,” Macke asserts, adding, “It won’t be in GameStop; it will be in other opportunities.”
Warren Buffett also commented on the speculative behavior during the first GameStop mania in 2021.
The “Oracle of Omaha” called the stock market a gambling parlor for retail investors, encouraged by Wall Street’s investment banks and brokerages. “It’s become a very significant part of the casino group that has joined into the stock market,” Buffett said at 2021’s Berkshire Hathaway annual meeting. “They’ve got systems set up so that if you want to buy a three-day call on a stock, you can do it.
And they make more money selling you calls than if you buy stocks. So they teach you.”
Buffett lamented the soaring use of short-term call options, saying that brokers extract more revenue from these bets than simple, long-run investing. The 93-year-old investment legend views stocks as small pieces of businesses and prefers to hold his investments for years, if not decades.
As GameStop faces an uncertain future, it remains to be seen whether the company will successfully reinvent itself or continue to struggle in the rapidly changing video gaming industry.
