Author Topic: GME - Game Stop Corp  (Read 34788 times)

Foreign Tuffett

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Re: GME - Game Stop Corp
« Reply #30 on: April 02, 2018, 08:58:06 AM »
One last thought on GME. Specifically, why I think the market is being basically rational in pricing it at a very low multiple of TTM results.

The below link is to a 2013 article. The gist of the article is that, in the lead up to the Xbox One's release, Microsoft backed off from implementing multiple design features that would have severely restricted the console's ability to play used game discs.

https://www.polygon.com/2013/6/19/4446060/xbox-one-drm-used-games-online-restrictions-180

Much has changed in the past 5 years, nearly all of which makes it much less likely that the console OEMs will have to back down next time. Internet speeds are, on average, faster. More importantly, the proportion of console video games that are purchased in digital only form has gone from very low (near zero?) in 2013 to ~35% today. While there is a vocal minority of gamers that remain adamant in favoring physical games due to the ability to resell or trade them in, it seems fairly clear that they aren't going to be able to hold back the tide much longer.

While nothing has been announced, the next gen Xbox and Playstation consoles will probably launch in 2020. If, as seems likely, they heavily eliminate or restrict used games, either by not having disc drives and/or via DRM software, GME's core "circle of life"* and used games businesses will be crushed. What's the correct price for GME shares if its core business has only nominal value 3 years from now?

* Circle of Life is the phrase GME's uses for its basic business model of (1) gamers buying a new game (2) later exchanging that (now used) game disc in towards the purchase of another game (3) repeat ad infintum. The idea is to encourage frequent visits to GME stores via allowing gamers to easily monetize games they're bored with.


doughishere

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Re: GME - Game Stop Corp
« Reply #31 on: April 02, 2018, 09:37:29 AM »
Im a gamer......currently play about 15 hours of pubg a week, never touched fortnight but watch it on twitch occasionally.


Why should I buy my next game from gamestop? any pc game ive been getting ive downloaded via steam or from the developer(think starcraft 2 and whatever app blizzard has, ps4 console store or xbox live store or what ever the current equivalent of those are). if i get a new console....dont really see myself doing that but lets say I do get a new nintendo(i believe there are people that do that) why would I choose GME over amazon or walmart or meijer or any other place(ebay, any other online store) bestbuy.....why as a gamer would i go to gamestop?


i would honestly rather "invest" in an item at the fortnight Item Shop item than in gme.....so why should I go to gamestop for my games? If im a 12 year old kid why would I have my mother drive me to a game stop instead of the other mentioned places?

my point is is that GME is like 15th on the list of places I would go to...if I was getting a new released consol....lets just say i wanted to "wait in line" opening day like all the other fanboys....why go to GME 1st?
« Last Edit: April 02, 2018, 09:43:16 AM by doughishere »

pcm983

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Re: GME - Game Stop Corp
« Reply #32 on: November 21, 2018, 01:52:49 PM »
anyone following post deal today?

700mm for mobile biz which is ~700mm of sales.

U.S. remainco looks like 4bn of RR sales and maybe ~100mm of RR Op Profit.

remaining TEV looks lik 1.25bn, with likely lower debt profile

Foreign Tuffett

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Re: GME - Game Stop Corp
« Reply #33 on: November 21, 2018, 02:45:57 PM »
anyone following post deal today?

700mm for mobile biz which is ~700mm of sales.

U.S. remainco looks like 4bn of RR sales and maybe ~100mm of RR Op Profit.

remaining TEV looks lik 1.25bn, with likely lower debt profile

- Capital structure starts to look much better once this transaction closes. Obviously they have lots of operating leases, so there's hidden leverage. New accounting rules mean that this leverage won't be hidden for long.

- Management has hung a "for sale" sign up. Disposing of Spring Mobile makes the company a more palatable acquisition target

- The single most important metric to watch is their "pre owned and value video games products" segment gross profit. Historically it has been their cash machine, but it's facing secular challenges.

actuary

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Re: GME - Game Stop Corp
« Reply #34 on: November 22, 2018, 05:01:14 AM »
anyone following post deal today?

700mm for mobile biz which is ~700mm of sales.

U.S. remainco looks like 4bn of RR sales and maybe ~100mm of RR Op Profit.

remaining TEV looks lik 1.25bn, with likely lower debt profile

Remainco rr op profit is much higher than that, right? 2017 operating earnings excl tech brands was ~$450 million.

Even after the pop yesterday, this thing looks cheap as dirt. Deal appears excellent as the market was not valuing this segment anywhere near 7x ebitda. Hopefully a sign of good capital allocation to come.

Good probability pe guys take this out before commoners can benefit too much, similar to OUTR. We'll see how much backbone the board has...

Regarding the used/value games, it's interesting to look back at the media narrative from a decade ago. We can argue about the tail left from here, but it seems clear the tail has been longer than most were expecting years ago. So what is the appropriate "base rate" for a forecast? Also thinking Mr. Market overestimates the operating leverage... all those units and short leases give much flexibility, and they have a good track record of managing down the unit count.

It will be interesting to see how much they benefit this holiday season from no toys r us.

If this isn't taken out and they can do substantial repurchases around this price and the core business continues to run off at controllable pace, this should be a multibagger over the next couple years. Meanwhile you clip the 11% div yield at this price, and there is no reason to consider cutting after the Spring sale.

actuary

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Re: GME - Game Stop Corp
« Reply #35 on: November 22, 2018, 04:56:08 PM »

Good probability pe guys take this out before commoners can benefit too much, similar to OUTR. We'll see how much backbone the board has...


Really interesting analysis. What happened with OUTR?

Sold to Apollo at around 2x the low but still way too cheap. Good thread on here...

writser

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Re: GME - Game Stop Corp
« Reply #36 on: November 23, 2018, 03:58:30 AM »
Tempted to agree it seems cheap. In their earnings press release (last page) they give operating earnings / segment (adjusted for impairments etc.):

2016: technology brands segment adjusted EBIT 90m. Total adjusted EBIT 618m (15%).
2017: technology brands segment adjusted EBIT 76m. Total adjusted EBIT 535m (14%).
2017 h1: tech brands adjusted EBIT: 33.4m. Total adjusted EBIT: 145m (23%).
2018 h1: tech brands adjusted EBIT: 31.5m. Total adjusted EBIT: 91.3m (35%).

So the sold segment was relatively small (to be fair it had way better margins than the rest). Last 6 months look very bad but the business is seasonal so I find it hard to draw a conclusion about the 6 month results of the remainco. What's left is obviously not a quality business but the company is pro-forma more or less debt free, assuming the operating leases don't turn out to be disastrous liabilities and with a market cap of $1.4b you buy the remainder at a ~2.5x EV/ 2017 EBIT multiple. Company has also consistently generated a boatload of free cashflow the last few years (~$400m / year the past five years).

Thing for me is that I find it hard to judge future declines in sales and even harder to judge the influence this decline will have on profitability / cashflow generation. I remember looking at this 4 years ago and thinking that it was cheap as well. I don't want to be the sucker buying Sears in 2012 .. Still, if you buy this at 2.5x 2017 EV/EBIT and 5x 2017 FCF or something like that it seems cheap even if you factor in a substantial decline.

Painful to see how they basically took on 800m of debt to buy back shares at $30 - $40 a few years ago and now with shares at $10 they lack the cash / guts to buy back more and start selling assets ..
« Last Edit: November 23, 2018, 06:47:00 AM by writser »
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@thewritser

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Re: GME - Game Stop Corp
« Reply #37 on: November 24, 2018, 02:31:30 PM »
Pretty disappointed in the decision to sell the Tech Brands division. Weakness in this segment and subsequent impairment was primarily due to changes in the commission structure which emphasized DirectTV sales. That backfired and they've changed the structure back to how it was. Because GME was, I believe, the largest third-party operator of AT&T stores they actually had negotiating leverage against AT&T. I think the only AT&T-owned stores that did better than GME were the locations in Manhattan. Very valuable business in the right hands.

I think selling this business dashes any hopes of a private equity buyout as well. It would've been very easy for a buyer to acquire GME and then carve-out Tech Brands in a transaction similar to this if they had wanted to. Now, there are not any hidden assets that can be unlocked.

Why would PE want to own this business now? All you have is the legacy game business which, in my opinion, does not have terminal value (including used games). Video game publishers hate the fact that GME exists because they want distribution to be 100% digital, and they also do not get any margin on used games. Publishers and platform providers are looking at ways to vertically integrate their positions in the value chain even more than what they currently are, and getting rid of the GME relationship is a high priority.

What we'll have to see now, probably on the earnings call, is what management decides to do with the $700mn they're getting for Tech Brands. I'd prefer the Company pay down debt with these proceeds, but they are not required to by their indenture. I think the risk of management blowing it doing something stupid is pretty high. I've heard some suggestions that they will try to acquire their way into other high quality, non-Amazonable retail businesses and transform into more of a holding company, but if that was the plan then why sell Tech Brands in the first place? They definitely had cash to acquire other businesses without it. 

Ahab

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Re: GME - Game Stop Corp
« Reply #38 on: November 24, 2018, 10:55:25 PM »
My two cents on this company is that the core business is in terminal, irreversible decline. Think Blockbuster or Hollywood Video. Back in middle school, I used to love going to Gamestop on the weekends. This was when nearly all videogames were only on disc and when it was still hard to find certain titles used online. Today, I haven't bought a game from Gamestop in nearly five years. If I absolutely have to get a disc, I  buy it on Amazon or Ebay. Otherwise, I just download games from Playstation Network. Bottomline, I think Gamestop's business will fall off the cliff sooner rather than later.
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gfp

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Re: GME - Game Stop Corp
« Reply #39 on: November 25, 2018, 06:16:08 AM »
I don't follow this stock or invest in retailers, generally speaking, but thought I would post that I have just done business with them for the first time and it might anecdotally contribute to some upside surprise if others are like me.  I purchased a physical copy of an Xbox One game - Red Dead Redemption 2 - for my Son which in it's "Ultimate Edition, Physical disc" form is a Game Stop exclusive.  This title is a fairly new release and has sold extremely well - so if others are like my son and want a physical copy of the ultimate edition, which includes some extra gobbledygook (can you tell I'm not a game player?), GameStop could have a positive holiday surprise.  I also purchased the Xbox One version of Grand Theft Auto 5 because I am told my Son only has the Xbox 360 version and it remains a popular game with him and his friends.

Kids these days... Spoiled rotten