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GameStop or what happens when you bet on the wrong horse

GameStop is trying to hold on to a quickly fading market. The CEOs may have made a fatal overcalculculation.

GameStop Corporation sells games and entertainment items through its ecommerce sites and retail locations. It operates in the United States, Canada, Australia, and Europe geographical sectors.

Big plans can go sideways – no pain no gain?

Chairman Ryan Cohen and Chief Executive Officer Matt Furlong committed to transform GameStop into a leader in operational excellence and exceptional store experiences. They bet most of the company’s future on capitalizing on emerging prospects such as crypto and NFTs.

More than a year after their shared and rather mysterious leadership, the experiment is beginning to look like a complete failure. Even Wall Street highlighted it’s concerns about the company’s business model, which includes too many expensive physical stores in dying malls and shifts to digital gaming.

As we know, the once-thriving digital NFT asset market has collapsed. Cohen and Furlong were speculating and betting on a NFT hail Mary quick cash in, which is not aiding GameStop’s turnaround attempts.

During a relatively short earnings call, less than 8 minutes, Furlong said:

“Today, we’re in the process of aligning corporate costs to our go-forward needs after completing the majority of necessary upgrades to our systems, fulfilment capabilities and overall foundation.”

A new wave of cost-cutting is a strong indicator of GameStop’s retreat. This hints that the business wants to start showing investors (including Cohen) some bottom-line gains at the price of any big turnaround strategy. GameStop is effectively pulling back on its capital set for investment.

So it seems this was only a distraction from the steady demise of its main business. Anybody with a reliable internet connection may download the latest titles from the comfort of their living room. Each console has a digital marketplace with plans and membership, therefore you basically no longer require a store or any kind of retailer.

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This makes GameStop a seller of collectibles like limited editions, figurines, props and such memorabilia. This industry has increased in general, but in this instance it still accounts for barely 20% of the company’s overall sales. Aside from expanding into collectibles, the retailer’s administration has not mentioned any other revenue-generating initiatives.

GameStop selloff continues 

Revenues and earnings of GameStop fell 12% short of expert projections. Earnings per share (EPS) also lagged 6.9% behind analyst projections. Compared to the 5.9% increase expected for the US Specialty Retail industry, revenue is anticipated to increase by 4.8% annually in the next two years.

The Q3 results show revenue of $1.19 billion, down 8.5% from the third quarter of 2022, net loss $94.7m a 10% improvement from the third quarter of 2022. The loss per share decreased to $0.31 from $0.35 in the third quarter of 2022.

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While the numbers are poor, the loss is not as bad as before, which bumped the stock’s value up. GME stock was up almost 12% after the results, but overall, down 40% since the beginning of the year. This surge was immediately shut down, as GameStop traded 5% lower the next day. Furlong also reported about $50 million of the revenue decline was due to forex exchange impacts.

GameStop may have been trying to pull a magic trick out of its NFT hat. Whether if it was to lure in capital, or rather gamble with it, or a genuine genius gone wrong, the bottom line is it seems like it failed. The steady and safe approach of cost cutting and gradual improvements may be what will help the company in the long run. There are also still quite a few things that need in-store selling. Lets not write this one off just yet.

Tomáš is a financial reporter with US markets as his main field. Tomáš is an aspiring author and entrepreneur aspiring to help people get better in financial knowledge.

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