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2021-06-03
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GameStop: Why The 'Blockbuster' Of Gaming Will Eventually Fail
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":118196202,"tweetId":"118196202","gmtCreate":1622722158906,"gmtModify":1634098770931,"author":{"id":3554876513636669,"idStr":"3554876513636669","authorId":3554876513636669,"authorIdStr":"3554876513636669","name":"Geswin","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":1,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>HODL</p></body></html>","htmlText":"<html><head></head><body><p>HODL</p></body></html>","text":"HODL","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/118196202","repostId":1154735458,"repostType":2,"repost":{"id":"1154735458","kind":"news","pubTimestamp":1620820511,"share":"https://www.laohu8.com/m/news/1154735458?lang=&edition=full","pubTime":"2021-05-12 19:55","market":"us","language":"en","title":"GameStop: Why The 'Blockbuster' Of Gaming Will Eventually Fail","url":"https://stock-news.laohu8.com/highlight/detail?id=1154735458","media":"seekingalpha","summary":"Summary\n\nGameStop has been a highly debated stock after a surge of retail interest turned the compan","content":"<p><b>Summary</b></p>\n<ul>\n <li>GameStop has been a highly debated stock after a surge of retail interest turned the company into a \"meme stock\" and drove shares into triple figures.</li>\n <li>The company is pivoting to e-commerce and has admittedly cleaned up its balance sheet nicely.</li>\n <li>The long-term problem is that the company faces margin pressures from a number of angles. The current valuation and business challenges present a \"lose/lose\" outcome to investors.</li>\n</ul>\n<p>Now considered a \"meme stock\"; gaming retail company GameStop Corp.(NYSE:GME)has seen volatility in its share price over the past year. The stock has bounced between a vast range from low single digits, to more than $480 per share. While much of the excitement has faded away, the stock still trades at more than $140 per share. A business transformation is underway, led by Ryan Cohen, the former CEO and co-founder of animal products e-commerce leader Chewy(NYSE:CHWY). This has many retail investors holding shares in anticipation of a long term rebirth, with GameStop becoming an e-commerce titan of the gaming industry.</p>\n<p>Unfortunately, the data doesn't point to this outcome. While the company has stabilized itself and now operates on a debt free basis, the company's needed capital investments to flesh out an e-commerce strategy in addition to secular tailwinds lead me to believe that GameStop will be unable to sustain long term profitability. In the event of successful execution, the valuation will take many years to be justified. For these reasons, GameStop is a very poor long term investment. We will outline our bearish thesis below.</p>\n<p><b>GameStop Forced To Go To E-Commerce</b></p>\n<p>GameStop has long been known among consumers as a brick and mortar centric video game retailer. When I was growing up (I'm now in my early 30s), I used to camp out in front of GameStop at midnight, waiting with friends for the latest release of our favorite games. While you could get games at nearly any retailer, the ability to trade in old games for store credit, and large product selection found at a gaming focused store such as GameStop was compelling for me as a gamer.</p>\n<p>Today, the way in which gaming is delivered to the consumer is far different. In many cases, games can be purchased (and pre-ordered) digitally. Fast internet speeds mean that games can be downloaded and played within minutes or sometimes a few hours. The rise of Amazon has brought the shopping experience to one's fingertips.</p>\n<p>These secular changes have slowly deteriorated GameStop's store traffic and resulting revenues.</p>\n<p><img src=\"https://static.tigerbbs.com/d0690d871cc1287d7d877083b48b74d0\" tg-width=\"640\" tg-height=\"377\">source: YCharts</p>\n<p>This significant decline in GameStop's business has forced the company to evolve, and begin the journey of shifting towards an e-commerce model. This has been led by an activist investor in Chewy co-founder Ryan Cohen, who got involved with GameStop in September of 2020.</p>\n<p><img src=\"https://static.tigerbbs.com/084ae308b6cc58704e8982e61b213408\" tg-width=\"640\" tg-height=\"162\">source: GameStop Corp.</p>\n<p>The company's plan is to strip costs out of the business by closing stores, cutting expenses, and devoting its resources to optimizing its product footprint while fleshing out the logistics needed for an e-commerce centric market strategy. These efforts remain in-motion. The company has closed roughly 1,000 stores through the end of 2020, andrecently leaseda 700K square-foot facility that will serve as a fulfillment center.</p>\n<p>To GameStop's credit, the business has seen signs of improvement. The company is currently debt free.</p>\n<p><img src=\"https://static.tigerbbs.com/575ba6c4954d66961e0a8550dcf561af\" tg-width=\"640\" tg-height=\"369\">source: YCharts</p>\n<p>The company has also raised capital with a timely equity raise in early 2021. GameStop raised $551 million on 3.5 million shares, averaging a price per share of $157. Considering the company has repurchased more than a third of its stock since spring 2019 at an average of $5.21/share, this is a phenomenal move on GameStop's part. This newfound capital will be needed as the company's transformation efforts are far from over.</p>\n<p>Multiple Margin Pressures Threaten Profitability</p>\n<p>While successful e-commerce models can be powerful, the formation of the e-commerce model can be costly. Infrastructure needs to be put into place, and the digital marketplace brings competition from all over.</p>\n<p>GameStop's financials are in a much better place at present. However over the long term, its largest challenge in pivoting to e-commerce is making the model profitable over the long term. There are a number of concerns I have about GameStop's ability to do this.</p>\n<p><b>Smaller Scale</b></p>\n<p>E-commerce is a \"cut-throat\" business, where scale is your friend. GameStop is seeking an e-commerce model that will pit it against much larger competitors such as Amazon (AMZN), Walmart (WMT), and Target (TGT). These companies have significantly higher scale than GameStop, including larger revenues (and balance sheets).</p>\n<p>In a retail space where the product is commoditized (gaming hardware/software is the same regardless of where you buy from unless a developer partnership is in place), there is not room for much mark-up and the larger players can take more \"pain\" to take/protect market share.</p>\n<p><b>Product Mix</b></p>\n<p>Another concern I have with GameStop is the company's product mix moving forward. Game distribution continues to move increasingly digital, and is a trend that I don't see reversing. It's simply far too convenient for gamers because they can buy/pre-order a game, and it can be downloaded relatively quickly thanks to faster internet speeds available today.</p>\n<p>This has been reinforced by console makers. The Xbox Series S lacks a disc drive, and the PlayStation 5 also offers a variant that does not include a disc drive.</p>\n<p>GameStop knows that software sales are in secular decline, and has indicated an intention to focus on hardware and accessories including:</p>\n<ul>\n <li>Computers</li>\n <li>Monitors</li>\n <li>Game Tables</li>\n <li>Mobile Gaming</li>\n <li>Gaming TVs</li>\n</ul>\n<p>The problem for GameStop, is that these declining software sales carried the highest margins for the company.</p>\n<p>From GameStop's 2020Q4 earnings call:</p>\n<blockquote>\n <i>\"From a product margin standpoint, overall gross margins were 21.1%, down 610 basis points from our more software-led 27.2% gross margin in the fiscal fourth quarter last year. The decline was driven by an expected increase in mix of lower margin hardware sales, a continued increase in industry-wide freight costs, credit card processing fees driven by our higher penetration of e-commerce sales, and a broader promotional stance.\"</i>\n</blockquote>\n<p>So GameStop is pivoting to lower margin, higher cost items - probably because it knows it has to. This isn't to say that GameStop can't pull it off, but the conflict is quite obvious.</p>\n<p><b>GameStop Needs To Repair Its Brand Image</b></p>\n<p>Perhaps the largest question mark I have about GameStop - even more than the economics of its future business model, is the company's branding. GameStop talks about being this gamer-centric, customer driven model that consumers love.</p>\n<p>However, this doesn't seem to be the current state of GameStop's brand. The company has been poked fun at on the internet for its \"low-ball\" offers on gamer trade-ins.</p>\n<p>GameStop also possesses a NPS (net promoter score) of -6according to Comparably. As a gamer myself, I had a \"bad taste\" in my mouth when sourcing my Xbox Series X. GameStop often tied its inventory of next-generation consoles to large expansive bundles that included high margin games and accessories that many consumers didn't want. If GameStop expects to become a modernized \"go-to\" shopping experience for gamers, they have work to do in the brand power department.</p>\n<p><b>The Long Path To Profitability Is Too Large A Risk</b></p>\n<p>GameStop can certainly address these concerns over time. The company's recent equity raise if anything, buys them time to try and execute this transition. This is also asking investors in GameStop to take on risk. While shares of GameStop have pulled back considerably, the stock still trades at $143 per share, multiples of what it did as recently as the beginning of the year.</p>\n<p><img src=\"https://static.tigerbbs.com/fcc11261f3b8202eaa6b86d9f99c97b0\" tg-width=\"640\" tg-height=\"375\">source: YCharts</p>\n<p>The company is not a growth stock, and therefore should be valued on earnings. But GameStop is losing money, and will not turn a profit anytime soon. Analysts see the company steadily getting closer to break even, breaking that barrier in FY2024 (three years from now).</p>\n<p><img src=\"https://static.tigerbbs.com/fa4040ac389c6925d97545645ac30c98\" tg-width=\"640\" tg-height=\"226\">source: Seeking Alpha</p>\n<p>But if GameStop achieves 2024 estimates of earning $1.35 per share, that means that the stock's current valuation is a whopping 106X 2024 earnings(!). Investing is about risk and reward, and I can't make the case to pay that valuation. Investors have to essentially give up the opportunity cost of investing elsewhere over this time frame, hope that GameStop can execute successfully, and then wait longer for the business to grow into its valuation over a 5+ year time horizon. Frankly, it seems silly.</p>\n<p><b>Wrapping Up</b></p>\n<p>When you put all of this together, GameStop offers a terrible risk/reward to investors. In a worst case scenario, GameStop fails to execute its e-commerce model and goes out of business. In a best case scenario, investors will wait years to justify the current valuation. When the outcome is lose/lose, I would rather not play at all.</p>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>GameStop: Why The 'Blockbuster' Of Gaming Will Eventually Fail</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\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: Why The 'Blockbuster' Of Gaming Will Eventually Fail\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-12 19:55 GMT+8 <a href=https://seekingalpha.com/article/4427260-gamestop-why-blockbuster-gaming-eventually-fail><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nGameStop has been a highly debated stock after a surge of retail interest turned the company into a \"meme stock\" and drove shares into triple figures.\nThe company is pivoting to e-commerce ...</p>\n\n<a href=\"https://seekingalpha.com/article/4427260-gamestop-why-blockbuster-gaming-eventually-fail\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"GME":"游戏驿站"},"source_url":"https://seekingalpha.com/article/4427260-gamestop-why-blockbuster-gaming-eventually-fail","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1154735458","content_text":"Summary\n\nGameStop has been a highly debated stock after a surge of retail interest turned the company into a \"meme stock\" and drove shares into triple figures.\nThe company is pivoting to e-commerce and has admittedly cleaned up its balance sheet nicely.\nThe long-term problem is that the company faces margin pressures from a number of angles. The current valuation and business challenges present a \"lose/lose\" outcome to investors.\n\nNow considered a \"meme stock\"; gaming retail company GameStop Corp.(NYSE:GME)has seen volatility in its share price over the past year. The stock has bounced between a vast range from low single digits, to more than $480 per share. While much of the excitement has faded away, the stock still trades at more than $140 per share. A business transformation is underway, led by Ryan Cohen, the former CEO and co-founder of animal products e-commerce leader Chewy(NYSE:CHWY). This has many retail investors holding shares in anticipation of a long term rebirth, with GameStop becoming an e-commerce titan of the gaming industry.\nUnfortunately, the data doesn't point to this outcome. While the company has stabilized itself and now operates on a debt free basis, the company's needed capital investments to flesh out an e-commerce strategy in addition to secular tailwinds lead me to believe that GameStop will be unable to sustain long term profitability. In the event of successful execution, the valuation will take many years to be justified. For these reasons, GameStop is a very poor long term investment. We will outline our bearish thesis below.\nGameStop Forced To Go To E-Commerce\nGameStop has long been known among consumers as a brick and mortar centric video game retailer. When I was growing up (I'm now in my early 30s), I used to camp out in front of GameStop at midnight, waiting with friends for the latest release of our favorite games. While you could get games at nearly any retailer, the ability to trade in old games for store credit, and large product selection found at a gaming focused store such as GameStop was compelling for me as a gamer.\nToday, the way in which gaming is delivered to the consumer is far different. In many cases, games can be purchased (and pre-ordered) digitally. Fast internet speeds mean that games can be downloaded and played within minutes or sometimes a few hours. The rise of Amazon has brought the shopping experience to one's fingertips.\nThese secular changes have slowly deteriorated GameStop's store traffic and resulting revenues.\nsource: YCharts\nThis significant decline in GameStop's business has forced the company to evolve, and begin the journey of shifting towards an e-commerce model. This has been led by an activist investor in Chewy co-founder Ryan Cohen, who got involved with GameStop in September of 2020.\nsource: GameStop Corp.\nThe company's plan is to strip costs out of the business by closing stores, cutting expenses, and devoting its resources to optimizing its product footprint while fleshing out the logistics needed for an e-commerce centric market strategy. These efforts remain in-motion. The company has closed roughly 1,000 stores through the end of 2020, andrecently leaseda 700K square-foot facility that will serve as a fulfillment center.\nTo GameStop's credit, the business has seen signs of improvement. The company is currently debt free.\nsource: YCharts\nThe company has also raised capital with a timely equity raise in early 2021. GameStop raised $551 million on 3.5 million shares, averaging a price per share of $157. Considering the company has repurchased more than a third of its stock since spring 2019 at an average of $5.21/share, this is a phenomenal move on GameStop's part. This newfound capital will be needed as the company's transformation efforts are far from over.\nMultiple Margin Pressures Threaten Profitability\nWhile successful e-commerce models can be powerful, the formation of the e-commerce model can be costly. Infrastructure needs to be put into place, and the digital marketplace brings competition from all over.\nGameStop's financials are in a much better place at present. However over the long term, its largest challenge in pivoting to e-commerce is making the model profitable over the long term. There are a number of concerns I have about GameStop's ability to do this.\nSmaller Scale\nE-commerce is a \"cut-throat\" business, where scale is your friend. GameStop is seeking an e-commerce model that will pit it against much larger competitors such as Amazon (AMZN), Walmart (WMT), and Target (TGT). These companies have significantly higher scale than GameStop, including larger revenues (and balance sheets).\nIn a retail space where the product is commoditized (gaming hardware/software is the same regardless of where you buy from unless a developer partnership is in place), there is not room for much mark-up and the larger players can take more \"pain\" to take/protect market share.\nProduct Mix\nAnother concern I have with GameStop is the company's product mix moving forward. Game distribution continues to move increasingly digital, and is a trend that I don't see reversing. It's simply far too convenient for gamers because they can buy/pre-order a game, and it can be downloaded relatively quickly thanks to faster internet speeds available today.\nThis has been reinforced by console makers. The Xbox Series S lacks a disc drive, and the PlayStation 5 also offers a variant that does not include a disc drive.\nGameStop knows that software sales are in secular decline, and has indicated an intention to focus on hardware and accessories including:\n\nComputers\nMonitors\nGame Tables\nMobile Gaming\nGaming TVs\n\nThe problem for GameStop, is that these declining software sales carried the highest margins for the company.\nFrom GameStop's 2020Q4 earnings call:\n\n\"From a product margin standpoint, overall gross margins were 21.1%, down 610 basis points from our more software-led 27.2% gross margin in the fiscal fourth quarter last year. The decline was driven by an expected increase in mix of lower margin hardware sales, a continued increase in industry-wide freight costs, credit card processing fees driven by our higher penetration of e-commerce sales, and a broader promotional stance.\"\n\nSo GameStop is pivoting to lower margin, higher cost items - probably because it knows it has to. This isn't to say that GameStop can't pull it off, but the conflict is quite obvious.\nGameStop Needs To Repair Its Brand Image\nPerhaps the largest question mark I have about GameStop - even more than the economics of its future business model, is the company's branding. GameStop talks about being this gamer-centric, customer driven model that consumers love.\nHowever, this doesn't seem to be the current state of GameStop's brand. The company has been poked fun at on the internet for its \"low-ball\" offers on gamer trade-ins.\nGameStop also possesses a NPS (net promoter score) of -6according to Comparably. As a gamer myself, I had a \"bad taste\" in my mouth when sourcing my Xbox Series X. GameStop often tied its inventory of next-generation consoles to large expansive bundles that included high margin games and accessories that many consumers didn't want. If GameStop expects to become a modernized \"go-to\" shopping experience for gamers, they have work to do in the brand power department.\nThe Long Path To Profitability Is Too Large A Risk\nGameStop can certainly address these concerns over time. The company's recent equity raise if anything, buys them time to try and execute this transition. This is also asking investors in GameStop to take on risk. While shares of GameStop have pulled back considerably, the stock still trades at $143 per share, multiples of what it did as recently as the beginning of the year.\nsource: YCharts\nThe company is not a growth stock, and therefore should be valued on earnings. But GameStop is losing money, and will not turn a profit anytime soon. Analysts see the company steadily getting closer to break even, breaking that barrier in FY2024 (three years from now).\nsource: Seeking Alpha\nBut if GameStop achieves 2024 estimates of earning $1.35 per share, that means that the stock's current valuation is a whopping 106X 2024 earnings(!). Investing is about risk and reward, and I can't make the case to pay that valuation. Investors have to essentially give up the opportunity cost of investing elsewhere over this time frame, hope that GameStop can execute successfully, and then wait longer for the business to grow into its valuation over a 5+ year time horizon. Frankly, it seems silly.\nWrapping Up\nWhen you put all of this together, GameStop offers a terrible risk/reward to investors. In a worst case scenario, GameStop fails to execute its e-commerce model and goes out of business. In a best case scenario, investors will wait years to justify the current valuation. When the outcome is lose/lose, I would rather not play at all.","news_type":1},"isVote":1,"tweetType":1,"viewCount":507,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":4,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/118196202"}
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