GameStop (GME), the once popular video game retailer turned meme stock, has been making headlines with its recent strategic initiatives, indicating a potential shift in its operating model. The company is reportedly exploring opportunities to put its $4.6 billion in cash and cash equivalents to work in the flourishing cryptocurrency market, including possible investments in Bitcoin. Moreover, recent reports suggest plans for GameStop to divest its operations in France and Canada as part of its ongoing evolution. It may find new life as a Berkshire Hathaway-style holding company or a Bitcoin bank. Still, until then, the stock seems to be animated more by market sentiment than the underlying fundamentals of its declining business. Investors currently holding the stock may be willing to roll the dice on what comes next, while new investors might want to hold off until that day dawns.
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Crypto Dreams
GameStop operates as a focused retailer in the gaming and entertainment field. The firm’s inventory range comprises new and pre-owned gaming consoles, associated accessories, and software, spanning controllers to virtual reality gear. GameStop’s digital offerings also encompass everything from in-game digital currency to complete game downloads. The company also targets tech and pop culture enthusiasts with a variety of lifestyle merchandise, such as toys, clothing, trading cards, and electronics.
According to sources cited by CNBC, GameStop is considering positioning itself for investments in cryptocurrencies, including Bitcoin. The intrigue around this transition was stirred up by Ryan Cohen, Chairman and CEO of GME, after a recent interaction with Michael Saylor, Strategy Inc.’s CEO (MSTR). Strategy is known for its leveraged play on Bitcoin, purchasing it through 0% convertible debt and preferred shares.
This has sparked speculation that Cohen might be considering a similar strategy for GameStop. Such a move would likely diversify the company’s financial portfolio and resonate with current market trends. The news led to a temporary surge in GME share prices.
A Declining Core Business
The company has experienced an ongoing decline in its core business, most recently reporting a drop in net sales for the third quarter of 2024, representing a 20.4% decrease compared to the previous year, resulting in $860 million in total sales.
In particular, it experienced a notable decrease in sales in the hardware and accessories department, falling from 53.7% to 48.5%. However, a slight increase in software sales was observed, rising from 29.8% to 31.6% of the total sales. Collectibles also gained traction, with a revenue increase from 16.5% to 19.9%. Administration costs have risen to 32.8% of sales from 27.5% last year.
Mixed Messages
The stock has been catalyzed by its meme status, climbing over 99% in the past year and roughly 2500% over the past five years. However, it currently trades near the lower end of its 52-week price range of $9.95 – $64.83 and shows mixed price momentum by trading above its 20-day (26.96) moving average but below its 50-day (27.51) moving average.
The stock is thinly followed by Wall Street, leaving investors to navigate competing headlines such as the recent one touting the stock as “Among the Best Stocks to Buy Under $20” while concurrently, another headline lists GME as one of the “Best Stocks to Short.”
GME Stock in Summary
GameStop is causing a stir with its strategic decisions, potentially signaling a shift in its business model, exploring the constantly evolving crypto market, including Bitcoin. Additionally, GameStop has hinted at consolidating its overseas operations as part of its transformation. Currently, market sentiment influences the stock’s performance more than its core business’s declining fundamentals. While existing shareholders may be willing to take risks regarding the stock’s future trajectory, prospective investors may want to proceed with caution until greater clarity emerges.
