GameStop Is Likely An Eventual Zero - But You Still Shouldn't Short It

seekingalpha2021-07-26

Summary GameStop has taken advantage of its infamous short squeeze to raise more than $1.5 billion by issuing shares. The influx of cash and involvement of activist investors has revived some hope in...

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精彩评论

takleee
2021-07-28
takleee
@小虎活动你好
BlueDaisy
2021-07-26
BlueDaisy
Agree!!
- Dechen:
  [呆住]
takleee
2021-07-26
takleee
Nice
AllanHSC
2021-07-26
AllanHSC
Ok
137bd706
2021-07-26
137bd706
Slow death

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nGameStop Is Likely An Eventual Zero - But You Still Shouldn't Short It\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-07-26 19:21 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4441316-gamestop-is-likely-an-eventual-zero-but-you-still-shouldnt-short-it><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nGameStop has taken advantage of its infamous short squeeze to raise more than $1.5 billion by issuing shares.\nThe influx of cash and involvement of activist investors has revived some hope in...</p>\n\n<a href=\"https://seekingalpha.com/article/4441316-gamestop-is-likely-an-eventual-zero-but-you-still-shouldnt-short-it\">网页链接</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"GME","symbol_name":"游戏驿站","start_time":0,"source_url":"https://seekingalpha.com/article/4441316-gamestop-is-likely-an-eventual-zero-but-you-still-shouldnt-short-it","article_id":"1193811590","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1193811590","pubTimestamp":1627298505,"columns":[],"sourceInfo":null,"weMediaInfo":null,"summary":"Summary\n\nGameStop has taken advantage of its infamous short squeeze to raise more than $1.5 billion ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"GME":"游戏驿站"},"translate_title":"游戏驿站可能最终为零--但你仍然不应该做空它","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"GME":0.9},"content_text":"Summary\n\nGameStop has taken advantage of its infamous short squeeze to raise more than $1.5 billion by issuing shares.\nThe influx of cash and involvement of activist investors has revived some hope in the fundamental case for this stock.\nBut GameStop's eventual demise has only been delayed. Physical media is declining, disc-less consoles are inevitable, and the company has failed to diversify into any growing industry.\nUnless you expect another short squeeze, stay away. Anyone expecting GameStop shares to be much higher 2+ years from now is hoping for a miracle.\n\nBrandi Lyon Photography/iStock Editorial via Getty Images\nGME Mania\nThe short squeeze that sent GameStop (GME) from $20 to a high of $480 in January has been impressively long-lived. After a dip down to the $50 range, it has stayed above $100 for nearly 5 months. GameStop has taken advantage by raising $1.5B in cash so far.\nThat's more than their entire market cap at the beginning of the year, so it's true that their position has improved dramatically. They repaid most of their long-term debt and the charts below don't even reflect the most recent $1.1 billion they raised.\nData by YCharts\nTheir immediate future has been secured, but the long-term outlook hasn't changed. Unless you expect another short squeeze, there's no reason to think GME can go higher on fundamental value. The ~$2B they have in cash doesn't come close to their $13 billion dollar market cap. To make up that gap you would need to believe their business is worth billions, but it's currently in demise.\nThe Business\nGameStop's core business is video game hardware and software (mostly physical discs) and the remaining 11% of revenue comes from collectibles.\nPhysical videogame discs have been in decline for the same reason as DVD movies - direct digital downloads are replacing them. At the start of the PS4/Xbox One generation in 2013, about 10% of console sales were digital. By 2017 it was 50/50, 63% digital by 2019, and 72% during 2020 (probably boosted by the pandemic).\nThe trend in their revenue seems to track the decline in physical games. You can also see performance deteriorating before the pandemic ever closed stores. You could blame that performance on the seasonality of the console cycle (4th gen launched in 2013 and 5th in 2020), but revenue still fell below the previous late-stage console cycle even though gross margins shrunk.\nData by YCharts\nNot Exactly Like Blockbuster\nThe trend in physical games is the biggest factor in GameStop's future, so it's worth analyzing the incentives of both consumers and console makers to switch to digital. Both Sony's (SONY) PlayStation and Microsoft's (MSFT) Xbox have released disc-less versions of their consoles for the first time in the newest generation. They are $100 cheaper than the standard version and potentially open the door to a future where all consoles drop the disc drive.\nSource: PlayStation.com\nFirst, we should consider the benefits to consumers. The rate they've been switching to digital might already show their preference, but physical games still have advantages. Unlike a download, you can re-sell or give discs to another person. For used games, GameStop offers returns so that you can try a game and return it within 7 days if you don't like it. PlayStation and Xbox generally don't allowreturnsfor their digital stores unless there is a purchasing error. The last benefit is that discs store data which saves some space on the hard drive of the console.\nThe case for digital games is similar to streaming vs. DVDs. Avoid the store and download games straight from your console. Although download times could negate that benefit, there are new improvements that allow players to access a portion of a game as the rest downloads or pre-download a game the night before it releases. You also don't have to worry about storing and switching out physical discs, and can log into your account to access your games from a different console.\nConsole Makers\nConsole developers are more directly incentivized than consumers to push digital downloads. They can sell games to consumers through the digital store on their console, which cuts out retailers like GameStop. They could keep more profit or offer better discounts to gamers. There's also the consideration that a console that costs $100 less is more competitive with alternatives like a PC or Nintendo Switch.\nA significant but overlooked threat to physical games is the affordable game subscription services that both PlayStation and Xbox offer. The biggest advantage of used games is that they can be sold beyond the first consumer and so you can find plenty of affordable, slightly older used games and make money back from them when you're done. But I'd suggest services like the $15/month Xbox Game Pass that charge for access to a library of hundreds of games can address value-oriented customers even better than used games.\nMicrosoft.com\nGamers don't need to worry about affordable used games if developers are providing affordable access to their back catalog. It makes sense for the developer because they don't make money from used game sales anyway. By letting gamers play an older title they may be persuaded to purchase the newest sequel or paid DLC.\nAnother argument for the disc drive is backward compatibility with previous consoles. This point falls completely flat because the new generation of consoles is digitallybackward compatible, allowing users to transfer titles they purchased from the now old generation onto the new console.\nAn additional contention is that disc drives will stay because they can also be used as Blu-ray players. The truth is that DVD/Blu-Rays are much less relevant than physical games. DVD/Blu-raysaleshave dropped from $10 Billion in 2010 to less than $3B the past four quarters starting from Q2 2020.\nOn top of that, the $100 discount for buying a digital console is more than enough to buy a stand-alone Blu-ray player, so that audience can go elsewhere and isn't incentivized to buy a game console if they didn't want one already. Another way to put it is that losing Blu-ray capability shouldn't affect demand for consoles.\nThe biggest reason neither company has given up the disc drive yet, and might not next generation, is that they are worried about the competition taking over retail distribution channels. 72% of console software sales were digital in 2020 and that should only grow over time, but even the remaining 28% is still meaningful. If only one of them gave up the disc drive, the competitors could keep it and be the only ones selling in GameStop and other retailers. So it's possible that both consoles will keep disc drives until physical discs are a truly tiny portion of the market.\nUncertain Future\nThe problem for GameStop is that even if the console makers don't try to cut out discs in a new generation, the market is shrinking and has been for over a decade. GameStop isn't alone in their market either, since you can buy the same products (except used games) at Walmart, Target, Best Buy, Amazon, or even used games on eBay and other sites.\nWith so many competitors, GameStop tries to differentiate itself by offering better service and having knowledgeable staff. But their own activist investorRyan Cohendiscovered stores had dusty shelves, poor customer service, and empty racks. From how it sounds, GameStop will have to spend money just to bring their retail experience up to par. It is going to be hard to stand out when so many excellent retailers sell the same product at the same price.\nEven thethirdof sales that were from E-commerce in 2020 have to compete with Amazon and every other e-commerce platform.\nGameStop.com\nAmazon.com\nYou can find the exact same games on Amazon.com or Walmart.com and those two actually have 1-day and 2-day shipping compared to GameStop's 2-5 day shipping. Online sales might even have less of a moat than retail because the buying experience is so comparable and GameStop will never have the distribution and marketing scale that Amazon does.\nA lot is made of what GameStop's retail store base couldbecomesince they are the largest retail brand exclusively dedicated to video games and still have over 4,000 stores. The problem is that GameStop had years to make attempts since they startedclosing storesin 2014 and the then CEO said they would expand to \"gaming-adjacent tech fields”. Over these years they've attempted sellingretro/classicvideo games,failed to launcha game subscription service, and made many promises to change the business. In 2019, now departing CEO George Sherman said his GameStop 2.0 plan would turn stores into a \"cultural experience\" and a place to “hang out and try games before buying\". Ryan Cohen's report of the poor retail experience and a continuing decline in sales shows that none of their attempts have worked so far. If there was a way to transform their stores to compete as video games go digital, you would have expected one of their CEOs to have found it over the past decade.\nValuation\nA long shot for success like GameStop would have investment potential at a deep value price, but that obviously isn't the case at $180/share. They have an enterprise value of $11B but haven't had significant FCF or EBITDA since 2018 and their market will keep shrinking over time.\nData by YCharts\nGameStop trades at double the valuation of most comparable stocks.\nBest Buy (BBY) has been growing for years and is solidly profitable but trades at an EV/Sales of 0.5 compared to GameStop at 2.1. Target (TGT) and other leaders in retail trade at an EV/Sales below 1.5 and clearly don't have the existential threat to their business that GameStop does.\nGameStop would need a massive turnaround in profitability to ever justify this valuation. With their core market shrinking fast and every attempt to diversify having failed so far, it seems like the stock is massively overvalued and the business could be worth next to nothing if they can't turn a profit.\nGME Still Isn't A Short\nEven though the stock is convincingly overvalued, it's doesn't seem like a compelling short. There's no reason why GameStop should be valued above $100 per share based on the condition of their business, but that hasn't stopped it from staying above that range for months after the initial squeeze. Without a clear catalyst or idea as to what will eventually bring shares back in line with the reality of their business, which could take years, I'm going to stay away from a short position.\nIf GameStop deftly times more share offerings when prices are high, they could bring in additional billions of cash. The share price has held up since the $1 billionATM offeringin June, so they might be able to take it even further. At $180/share, each $1B of shares sold brings in about $14 in cash per share on top of the roughly ~$27/share they have now.\nAt some point, enough share offerings could tank the share price, but anyone who is short the stock risks taking a ride if it spikes back to the highs of $400+ or above in the meantime.\nEven if GME shares don't see those highs again, they could stay around the current level for a while. For reasons outlined in my article aboutRobinhood, gamblers are increasingly coming to the stock market. GME is still the most notorious meme stock, and pure speculative interest could keep shares in this range for an untold amount of time. A patient and careful short-seller might be able to manage a position for a decent return, but the uncertainty and volatility should encourage most investors to stay away from a position on either side.\nConclusion\nThe meme of GME stock is going to run into the reality of GameStop's deteriorating business and overvaluation at some point. The several billion dollars from share offerings will pay their debts and keep them in business short-term, but it will be near impossible to justify the current $13 billion valuation. Competition on all fronts and a lack of any differentiation in a declining market will prevent them from making substantial returns on their capital. The business will eventually be priced as the existentially threatened and hardly profitable retail company that it is.\nIf you disagree, feel free to share your thoughts below.","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":801922474,"gmtCreate":1627480320398,"gmtModify":1633764611276,"author":{"id":"3562130752693399","authorId":"3562130752693399","name":"takleee","avatar":"https://static.tigerbbs.com/14f28ca9ee99ff6f70d96d4f0056a4bc","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3562130752693399","authorIdStr":"3562130752693399"},"htmlText":"<a href=\"https://laohu8.com/U/36984908995200\">@小虎活动</a>你好","listText":"<a href=\"https://laohu8.com/U/36984908995200\">@小虎活动</a>你好","text":"@小虎活动你好","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/801922474","repostId":1193811590,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":800525536,"gmtCreate":1627309182225,"gmtModify":1633766267166,"author":{"id":"3582677971530678","authorId":"3582677971530678","name":"BlueDaisy","avatar":"https://static.tigerbbs.com/0747094283743978b62fb8b1ee2cf44c","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3582677971530678","authorIdStr":"3582677971530678"},"htmlText":"Agree!!&nbsp;","listText":"Agree!!&nbsp;","text":"Agree!!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/800525536","repostId":1193811590,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5341077,"gmtCreate":1627348833364,"gmtModify":1635220669700,"authorId":4087631187161330,"author":{"id":4087631187161330,"idStr":"4087631187161330","authorId":4087631187161330,"name":"Dechen","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":800525536,"type":1,"supId":0,"prevId":0,"content":"[呆住]","text":"[呆住]","html":"[呆住]"}],"langContent":"EN"},{"id":800649063,"gmtCreate":1627300979052,"gmtModify":1633766387431,"author":{"id":"3562130752693399","authorId":"3562130752693399","name":"takleee","avatar":"https://static.tigerbbs.com/14f28ca9ee99ff6f70d96d4f0056a4bc","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3562130752693399","authorIdStr":"3562130752693399"},"htmlText":"Nice","listText":"Nice","text":"Nice","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/800649063","repostId":1193811590,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":800640746,"gmtCreate":1627300978085,"gmtModify":1633766387553,"author":{"id":"3581938203401770","authorId":"3581938203401770","name":"AllanHSC","avatar":"https://static.tigerbbs.com/af1eca8549b3972a4d10d5f317b913b9","vip":1,"crmLevel":7,"crmLevelSwitch":0,"idStr":"3581938203401770","authorIdStr":"3581938203401770"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/800640746","repostId":1193811590,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":800659128,"gmtCreate":1627300128264,"gmtModify":1633766394501,"author":{"id":"3584415246670106","authorId":"3584415246670106","name":"137bd706","avatar":"https://community-static.tradeup.com/news/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3584415246670106","authorIdStr":"3584415246670106"},"htmlText":"Slow death","listText":"Slow death","text":"Slow death","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/800659128","repostId":1193811590,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":33,"commentSize":5,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; 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