GameStop (GME) - Summary of both Bear and Bull cases
Disclaimer: This is not a financial advice and please do your own due diligence before making any financial decisions.
Source: Google, Reddit
None of this is originally written by myself and the purpose of this post is to consolidate information to portray perspective from both bears and bulls as neutral as possible for the benefit of new GME investors/speculators.
You are welcome to leave any valuable information or point out any misinformation in the comments and I'll add them to the post.
GameStop (GME)
Bear Thesis
- Game console cycle in 2020
- Boost in revenue due to new console cycle is temporary
- Low margin on distributing game consoles
- Main profit margin comes from software and virtual goods
- Brick & mortar is dying due to digitalization of gaming
- Largest profit center for Gamestop is pre-owned and value video game
- High revenue but low profit on new video game hardware and software sales
- Gaming market is moving towards online game download instead of physical discs (Steam, Riot, Gaming Consoles)
- It’s a matter of time game console manufacturers do not need them for distribution or service centers for their hardware
- Microsoft deal
- A share of Microsoft Xbox’s digital revenue goes to Gamestop
- Revenue share unannounced
- What’s next after the multi-year deal end?
- Revenue share does not include pre-owned console sales
- Continued closing of physical stores
- Signifies accelerated closing of business
- Directors taking profits after record week
- Older board members sold part of their shares to profit after the record week
- /u/Invisible0815 pointed out " board members most likely sold because they will not stand for re-election in june. AND they didnt sell all their shares. one member had to sell because of his own funds regulations. i bet u, he didnt want to sell (hestia capital, he should be on cohens side cause he hates old management). "
- Bull case counterarguments from /u/baystreetdegenerate
- Nintendo next game console in 2022
- Okay, what happens in the downtime between console releases
- OP's reply: Current generation of consoles are still being traded at GameStop, which is one of their revenue stream
- Data is a key asset as the company can use it to analyse new trends in gaming Data can be monetized by selling it to gaming manufacturers or developers
- Outside of tracking customer behavior on their website and sales and trade-in data what else can they even collect? Developers and manufacturers have multiple, and probably better ways of collecting data already and I don't think whatever sort of data GS can gather will be worth much
- OP's reply: Yes, I agree with you that developers and manufacturers have their own way of collecting data. However, GameStop will be able to provide data on the market overview of the gaming industry if they manage to pull of being a centralized e-commerce giant
- Turning physical stores into a showcase vendor’s games or new concepts
- That's what youtube is for...
- OP's reply: I believe there's a market for people who prefer physical roadshows or showcases compared to online videos.
- Possibility to create a neutral platform for trading digital goods and charge a small fee for facilitating transactions
- Like Steam's marketplace? Aren't most tradeable items on Steam from Valve games? This idea would require games from unrelated devs to have tradeable digital goods and that they would sign it over to GameStop's trading platform, but why would they do that? What would they gain out of it? Or are you talking about digital goods like digital copies of games? No gaming company would allow trading/reselling of digital copies of games. This idea is a non-starter.
- OP's reply: I do agree this idea seem far-fetched, but there is a possibility that it can be pulled off.
- E-sports tournaments/leagues to be held at physical stores
- This idea of turning physical stores into social hangouts like the Warhammer DnD game stores is a little sketchy. Because 1) it requires investment into physical space and 2) it essentially turns the store into a PC bang which only really works in Asia due to costs and culture. Furthermore, why would I go out of my way to play games with a bunch of sweaty nerds at a GS store when I could just do it at home without smelling their BO?
- OP's reply: They may convert several stores into PC shops for the purpose of E-sports leagues/tournaments only but not operate a PC shop business. There's definitely money to be made in the growing e-sports scene. E.g. advertising, streaming, etc.
- RYAN COHEN: e-commerce
- How does his expertise in pet food ecommerce translate into brick and mortar gaming stores?
- OP's reply: We are speculating that the management are going to announce their plans between Apr-Jun 2021.
- Low price to sales ratio at 0.4476 as at 15/1/21
- Well, yes, because there's no clear path to long term revenue
- Nintendo next game console in 2022
Bear case conclusion: Business turnaround fails and trend towards book value at a price target of $5.
Bull Thesis
- Nintendo next game console in 2022
- 4th year into Nintendo switch’s 7-year life cycle, estimated new console launch in 2022
- Continue to be a distributor for game consoles and benefit from Nintendo’s new console launch
- Estimated total addressable market for gaming of USD151Bn and growing
- Established relationship with 42 million gamers through PowerUp Rewards loyalty program
- 15.2 million members have purchased or traded at GameStop in 2019
- Data is a key asset as the company can use it to analyse new trends in gaming
- Data can be monetized by selling it to gaming manufacturers or developers
- Vendor partnerships
- Turning physical stores into a showcase vendor’s games or new concepts
- Opportunity to monetize publisher and console manufacturer relationships
- Possibility to create a neutral platform for trading digital goods and charge a small fee for facilitating transactions
- E-sports tournaments/leagues to be held at physical stores
- Brand recognition of GameStop and a lack of centralization for gaming
- Opportunity for GameStop to be a centralized e-commerce platform for gaming consoles, digital games, merchandise, customization of computers, laptops, gaming chairs, etc.
- Low price to sales ratio at 0.4476 as at 15/1/21
- Board refreshment - Ryan Cohen, Alan Attal and Jim Grube previously from successful Chewy Inc. (CHWY)
- Proven successful e-commerce track record
- Acceleration of digital transformation with new board members
- RYAN COHEN
- Founder of Chewy
- Largest e-commerce acquisition. Sold Chewy to PetSmart in April 2017 for USD 3.35 billion
- Chewy went public in 2019 at a valuation of USD 8.7 billion.
- Saw an opportunity in GameStop and took a stake of 12.9% as of latest SEC filing
- Potential short squeeze (Speculative)
- Estimated short interest of 138% not covered
- Any positive news or materialization of bull case may send share price further up
- Eventually shorts may have to cover and send the share price even higher
- /u/OCOWAx pointed out that /u/ethandavid did a DD on GME converting stores into PC kiosks, link below
Bull case conclusion: Successful business turnaround and prove going concern. Being an e-commerce leader in the gaming industry.
EDIT: Positions 900 shares @ 36.55
EDIT 2:
Gave Ryan Cohen his own section in a seperated bullet point as requested in the comments.
And thank you /u/Invisible0815 for the additional information on Directors sale of shares, added in the Bear Thesis above.
EDIT 3:
Updated bull case: /u/OCOWAx pointed out that /u/ethandavid did a DD on GME converting stores into PC kiosks
Updated bear case: /u/baystreetdegenerate have some valid counterarguments against bull case, these are added to the bear case.