There was a comment on this sub after the most recent GameStop earnings asking:
“With all the attention on GME, I would really appreciate hearing a factual argument about how this is a positive for shareholders and a positive for the future of the company. There seems to be a stark divide between what some people want to happen and what appears to be happening.”
Here are some Q&A-style answers to that comment and others I’ve seen.
Why don’t GameStop investors care that revenue is decreasing?
This is probably the biggest misconception about the company’s outlook – the role of the legacy business.
The pre-2021 main bull case for GameStop stock was not that the company would definitely turn itself around, but rather that Wall Street was too eager in pegging it for bankruptcy, resulting in its low stock price. The company was struggling, but investors like Keith Gill believed that bankruptcy was further on the horizon, that the secular headwinds were overstated for the near-term, that the company had more time than believed to address those concerns.
Fast-forward to 2024. Bankruptcy has been all but removed from the conversation, though more so due to stock offerings as opposed to the resilience of console gaming. Even so, this still upholds the original bull thesis because now it seems they have all the time in the world to right the ship, right?
Not necessarily. The legacy business is still a liability. I say “legacy” because many GME investors (including Gill, per his latest stream) aren't sure physical gaming is the future for this company, but it is the current reality. The company is fine, but the business model is flawed and staring at those same secular headwinds. Therefore, the company’s revenue decrease has been attributed more to efforts to right-size those operations in order to return to profitability, thus minimizing the current business model as a liability. It comes at the expense of revenue, but that’s not as big of a concern as it would have been without the cash hoard income they’ve acquired.
What are investors looking for in the earnings reports?
More hints at what the cash reserve will be used for. No real plan laid out at this moment.
Why doesn’t that bother you?
From a neutral perspective, it seems reasonable to assume one of two possibilities:
- There isn’t a definitive plan for the cash at this moment.
- If there is a plan, it would likely deploy in one aggressive swoop (based on how Cohen tends to invest), so signaling beforehand may seem imprudent to the board.
PERSONALLY (re: now we’re entering into my speculative bull case), I think the timing of the cash deployment will coincide with one thing – the steadying of revenue.
It seems clear that the board is not interested in expanding into new revenue streams unless they're really sure there's no risk to profit margin, however meager. In my opinion, the moment they see that revenues AND profit are holding steady – in other words, that the legacy business is swimming on its own in its little kiddy pool – we will see cash being deployed.
That’s probably my biggest bull case for the stock in the near-term. I don’t buy that the long-term plan is T-bills for that cash hoard. Whether or not you believe Cohen is a savvy investor, one pattern is very clear – when he bets on something, it’s usually a swing for the fences. I think the market will react intensely to the news that GameStop has started deploying its cash reserves, regardless of what the cash ends up being used for.
I caution everyone on this sub and others to avoid dismissing the case for GameStop simply because of its intense online following. I really wish it could be talked about in more neutral terms. The reality of most discussion around it being so hyperbolic (whether negative or positive hyperbole) has made it really hard to seek out good sounding boards for discussion.
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