GME - Game Stop Corp

[Foreign Tuffett]

Isn't this just like the last Xbox though that had two version, one without the disc drive and the other with it?  Disclosure: I have never played a video game in my life.

 

No, because this is the first major console to launch with an all-digital option. Also, the only Xbox One all-digital is an S version, not the flagship (more powerful) X version. Both versions of the PS5 will be identical outside of the disc drive (or lack thereof).

 

Rumors of an all-digital next gen Xbox (code named "Lockhart") have been circulating for months. But now we have Sony, to the surprise of many, making its own all-digital console announcement.

 

Good overview of the situation as it stands today:

 

https://www.gamespot.com/articles/why-microsoft-is-smart-to-release-a-cheaper-xbox-s/1100-6478229/

 

TLDR version: Based on all available info, GME is about to be partially disintermediated by both Sony and Microsoft

 

 

 

[Guest roark33]

Ok, another stupid question, what would be the reason to buy the one without the disc if they are the same price? 

[Foreign Tuffett]

Ok, another stupid question, what would be the reason to buy the one without the disc if they are the same price?

 

Who said they will be the same price? I think all-digital version will almost certainly be priced lower.

 

 

[writser]

I'm surprised nobody has updated this thread! Fundamentals be damned, with the founder of Chewy buying like crazy, are we in for an epic short-squeeze? I know that IB sucks with inventory but there are currently no shares available and the indicated rate is now ~30%. Interesting situation. Might not be the worst idea in the world to join the action (but probably not the best idea either .. ). I'm long a few shares, mostly for entertainment value.

[5xEBITDA]

I'm surprised nobody has updated this thread! Fundamentals be damned, with the founder of Chewy buying like crazy, are we in for an epic short-squeeze? I know that IB sucks with inventory but there are currently no shares available and the indicated rate is now ~30%. Interesting situation. Might not be the worst idea in the world to join the action (but probably not the best idea either .. ). I'm long a few shares, mostly for entertainment value.

 

Did you see the credit agreement amendment they did yesterday? They are going to have working capital issues going into the holiday buying season I think

[Foreign Tuffett]

Almost exactly one year from when Burry's open letter to the board created a bit of a short squeeze.

 

I suppose it doesn't take much for a battleground microcap with high short interest to pop.

 

 

 

[Foreign Tuffett]

$252.2 million of gross profit for "over 5,100 stores across 10 countries" (per 10-Q). That just isn't sufficient.

 

The basic problem here is that GME lost their big gross profit generator (pre owned games) and has never been able to replace it w/ anything else.

[Guest roark33]

Yeah, and now they are burning their inventory to stay cash flow positive.  That can only last so long. 

[Foreign Tuffett]

https://www.bloomberg.com/news/articles/2020-09-21/top-gamestop-investor-wants-to-turn-retailer-into-amazon-rival

 

This is a remarkable situation, in which the new activist apparently wants to "broaden GameStop’s online selection and compete head-to-head with some of the biggest e-commerce companies....Rather than just offering video games and a smattering of toys, clothing and accessories, GameStop’s website would sell a wide range of merchandise and ship it to customers more quickly"

 

I want some of what he's smoking!

 

 

 

Anyway, good call by writser that all this hubbub could lead to a short squeeze.

 

 

 

"The new Microsoft and Sony gaming consoles have disc drives, which means many consumers will still be buying physical media for them -- a boon for GameStop."

 

Um, the above sentence from the article isn't even accurate. It should read as follows: "Some of the new Microsoft and Sony gaming consoles have disc drives..." or "Two out of the four new Microsoft and Sony gaming consoles have disc drives...."

 

Bloomberg needs to hire some 16 year old Call of Duty-playing kids to proofread its articles. 

[dcollon]

This is interesting

 

https://seekingalpha.com/news/3620893-gamestop-strikes-deal-microsoft-includes-cloud-operations

[Stuart D]

Up another 40%,

The swings on this name are wild!

[dbuch]

https://www.wired.com/story/you-should-buy-disc-drive-playstation-5/#intcid=_wired-right-rail_a6fbe0c1-f115-41bc-91e4-a143ae198162_popular4-1

[RadMan24]

https://www.wired.com/story/you-should-buy-disc-drive-playstation-5/#intcid=_wired-right-rail_a6fbe0c1-f115-41bc-91e4-a143ae198162_popular4-1

 

Ultimately, the disc based consoles will be for the enthusiasts. Blu ray discs are still superior to streaming movies, particularly for those who have the right equipment and that will likely always be the case due to bandwidth issues.

 

From an investment point of view, shorts once again got burned heading into a console refresh, yet from here, the bullish case is quite murky and difficult to analyze.

[Foreign Tuffett]

I thinks this is the third round of activism in just the past couple of years.

 

https://www.sec.gov/Archives/edgar/data/1326380/000101359420000821/rc13da3-111620.pdf

 

What is remarkable to me is how little understanding any of the activists have demonstrated of GME's core business. Take this sentence for example:

 

"To add insult to injury for GameStop’s stockholders, the size of the global gaming market has grown by more than 2.5x since the last console cycle."

 

How relevant is that, really, given that mobile (smartphones) and East Asia (China and SE Asia in particular) have outpaced overall global gaming market growth, and GME has very little exposure to mobile gaming and zero exposure to East Asia.

 

 

This is what Cohen wants GME to do:

 

"In this spirit, we urge you to quickly provide stockholders with a credible and publicly-available roadmap for cost containment, prioritizing profitable retail locations and geographic markets, and building the e-commerce ecosystem gamers deserve."

 

Um, that is basically just a regurgitation of the management's current strategy. Management has been cutting costs and closing stores, closed down Scandinavian operations altogether, and recently revamped the website and mobile app. So he is basically just taking the company's current strategy and regurgitating it back to management. Truly galaxy brain levels of strategery.

 

 

Edit: I have not been long or short GME since last year.

[Guest roark33]

Yeah, I was just reading this letter thinking, what exactly does it mean to invest heavily in e-commerce.  Buy Steam, beat amazon with delivery times? 

[5xEBITDA]

Unfortunately, baring a pretty severe downside surprise with Q4/holiday sales, I threw in the towel on the credit negative thesis on GME since I was anticipating a more dramatic credit event in 3Q or early 4Q relating to insufficient liquidity. They successfully completed a sale leaseback, calmed the market with their (only partially) successful exchange offer and have stated their intent to retire the remaining junior bonds, and have garnered renewed interest in the situation as reflected by the growing equity valuation.

 

However, I could not be more in agreement with the above that no one in the situation has demonstrated real knowledge of how the Company's business model works. It has almost nothing to do with e-commerce and everything to do with their used game business. Perhaps the recent activists do realize this, but can't outwardly say it because it would definitely cause a panic for the situation.  Shrinking the Company's physical footprint as much as possible is really the best way to combat this problem, which is in line with the suggestions. I doubt margins on used games will be as high as current if you shift that business to an online fulfillment. I believe each store's used inventory is sourced directly from the store itself via trade ins, I don't think there is some central distribution of that stuff. Maybe there is some regional sharing among clusters of stores, I'm not sure. But you need the retail footprint in order to get that stuff back to customers quickly and with basically all margin.

 

One thing that struck me is odd is the chatter that GME is going to retain some percentage, definitely a single digit basis point, if any, of all future DLC/micro-transaction content that is purchased on any microsoft device bought via GME? I have seen several people state this citing some conversations with GME IR, but have not yet seen any specific confirmation from the Company. This could potentially be a shoe to drop on their next earnings call because I suspect it will be brought up. I wouldn't be surprised if this was maybe some deal that was inferred and never explicitly stated by the IR people, because otherwise the recent deal with microsoft doesn't really do much for GME at face value.

[Guest roark33]

So many reddit GME longs.  I don't think they understand that mgmt has basically burned inventory to survive and the associated profits with it.  The margins going forward are going to continue to dwindle and this will be a cash consuming business in the next 18 months, unless they significantly downsize their footprint. 

[winjitsu]

So many reddit GME longs.  I don't think they understand that mgmt has basically burned inventory to survive and the associated profits with it.  The margins going forward are going to continue to dwindle and this will be a cash consuming business in the next 18 months, unless they significantly downsize their footprint.

 

stay off wallstreetbets ;)

[lnofeisone]

So many reddit GME longs.  I don't think they understand that mgmt has basically burned inventory to survive and the associated profits with it.  The margins going forward are going to continue to dwindle and this will be a cash consuming business in the next 18 months, unless they significantly downsize their footprint.

 

I'm itching to reshort (lost a little before). I'm not whelmed by what these activists are bringing to the game but waiting for ER to get confirmation that there is no real improvement and this is still a melting ice cube.

[Guest roark33]

$100m ATM offering....

 

http://news.gamestop.com/news-releases/news-release-details/gamestop-reports-third-quarter-results-positive-start-fourth

 

GME looked at their stock price....

 

WSB crowd will probably eat it up....shaking my head.

[lnofeisone]

$100m ATM offering....

 

http://news.gamestop.com/news-releases/news-release-details/gamestop-reports-third-quarter-results-positive-start-fourth

 

GME looked at their stock price....

 

WSB crowd will probably eat it up....shaking my head.

 

It's not a bad idea given where stock is and they bought $100M+ worth last year in the $5 region. Maybe they ought to consider money management once the hardware sales taper off  ::).

[Foreign Tuffett]

Q3 earning look quite bad, no real surprises there.

 

I am not impressed by the +16.5% November comps as trivially easy to drive traffic due to (a) the start of the new console cycle, (b) GME making it known that each store would have at least a few new consoles in stock on Black Friday, and © this year's Call of Duty launching in Nov instead of Oct.

 

December could also be strong if Cyberpunk 2077 becomes this year's Red Dead Redemption 2.

 

Management is smart to want to sell stock into the market. The stock is overvalued and the company could definitely use more cash.

 

I was briefly short this when it spiked to $19 late last month. Maybe I will get another bite at the apple?

[RadMan24]

Q3 earning look quite bad, no real surprises there.

 

I am not impressed by the +16.5% November comps as trivially easy to drive traffic due to (a) the start of the new console cycle, (b) GME making it known that each store would have at least a few new consoles in stock on Black Friday, and © this year's Call of Duty launching in Nov instead of Oct.

 

December could also be strong if Cyberpunk 2077 becomes this year's Red Dead Redemption 2.

 

Management is smart to want to sell stock into the market. The stock is overvalued and the company could definitely use more cash.

 

I was briefly short this when it spiked to $19 late last month. Maybe I will get another bite at the apple?

 

Short if you want. But keep in mind, the console sales have been limited due to supply chain disruptions, those will abate in the Spring. Further, a lot more people are playing video games on consoles and folks will be buying the new generation hands over fists for the foreseeable future. The long term impact of this will be hugely positive for GME, unless we say a high uptake in the digital only consoles. 

 

5xEBITDA mentioned this, but I still don't quite see the bull case, but shorting this stock offers very little reward, high risk, and high stress. We've seen it all this year.

 

The other thing, GME has resources to adapt. Prior management failed, but that's not to say this one will too.

[Foreign Tuffett]

Q3 earning look quite bad, no real surprises there.

 

I am not impressed by the +16.5% November comps as trivially easy to drive traffic due to (a) the start of the new console cycle, (b) GME making it known that each store would have at least a few new consoles in stock on Black Friday, and © this year's Call of Duty launching in Nov instead of Oct.

 

December could also be strong if Cyberpunk 2077 becomes this year's Red Dead Redemption 2.

 

Management is smart to want to sell stock into the market. The stock is overvalued and the company could definitely use more cash.

 

I was briefly short this when it spiked to $19 late last month. Maybe I will get another bite at the apple?

 

Short if you want. But keep in mind, the console sales have been limited due to supply chain disruptions, those will abate in the Spring. Further, a lot more people are playing video games on consoles and folks will be buying the new generation hands over fists for the foreseeable future. The long term impact of this will be hugely positive for GME, unless we say a high uptake in the digital only consoles. 

 

5xEBITDA mentioned this, but I still don't quite see the bull case, but shorting this stock offers very little reward, high risk, and high stress. We've seen it all this year.

 

The other thing, GME has resources to adapt. Prior management failed, but that's not to say this one will too.

 

I don't mean for this to come off as insulting or dismissive, but everything you mention is very superficial. You need look at what kinds of gross margins GME earns on the different categories of items it sells.

 

You should also look at how quickly digital software sales are gaining share on console. A good place to start would be the comments Strauss Zelnick made just two or three days ago, as well as EA's most recent earnings call.

[thepupil]

to be short the stock or long the bonds makes little sense to me. they are both short volatility positions in an fundamental situation of extreme volatility (collapsing sales and share count).

 

I think the above still applies (with the twist that sharecount is now growing)

 

there are 67mm shares short, there are 69mm shares, maybe they raise 8mm more. nevertheless, the fact that a very large percentage of shares is short, in my view, is reason enough to avoid shorting this. the 10's of 2023 only yield 8% which is not enough to lend to GME.