Author Topic: GME - Game Stop Corp  (Read 45223 times)

Foreign Tuffett

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Re: GME - Game Stop Corp
« Reply #40 on: November 26, 2018, 06:59:03 AM »
Up significantly today on strong estimated industry-wide Black Friday sales + Merrill (which has been very bearish) upgrading to neutral.

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Foreign Tuffett

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Re: GME - Game Stop Corp
« Reply #41 on: November 29, 2018, 02:15:02 PM »
Just released earnings; stock is down significantly after hours.

As I mentioned in a previous post, I think the single most important metric for GME is their "pre owned and value" segment gross profit. This clocked in at a -14.3% Y/Y decline this Q. The declines in this segment, which until this FY were manageable, are looking increasingly dire.   





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5xEBITDA

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Re: GME - Game Stop Corp
« Reply #42 on: November 30, 2018, 06:03:22 AM »
Not surprised with the guidance cut...probably should've been anticipated after EA/ATVI this Q.

Good to see Tech Brands post a strong Q after they got a couple wrinkles ironed out. Tech gross profit, as a % of total, is nearly as big as pre-owned games (20% vs. 24%) and made up a quarter of total operating earnings for the Q. I'm not sure how much of the guide cut is weakness in video games vs. exclusion of tech brands going forward.

Of course the SS is pushing for share buybacks. I can't see how that makes any sense at this point. The focus needs to be on diversifying into another business line, but I'm concerned they'll try to reinvest into the video game business.

I'm sure what is likely to happen is the Company will buy something else, and then retain the ~$450mn cash on their balance sheet in order to refinance their debt. I don't think they'll be able to refi at an affordable rate without having a substantial amount of cash on their balance sheet, so it doesn't make sense for people to think they'll announce a big buyback or other form of shareholder return until thats wrapped up.

$350mn 2019 bond is due next October, so that is clearly the next thing to take care of here.


Foreign Tuffett

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Re: GME - Game Stop Corp
« Reply #43 on: November 30, 2018, 08:50:48 AM »
Just released earnings; stock is down significantly after hours.

As I mentioned in a previous post, I think the single most important metric for GME is their "pre owned and value" segment gross profit. This clocked in at a -14.3% Y/Y decline this Q. The declines in this segment, which until this FY were manageable, are looking increasingly dire.   

To follow up on this, I think the most telling exchange on the CC was the below:

"Anthony Chukumba

I had one question and one follow up. In terms of my primary question, I thought you said something interesting in terms of the weakness in used and that you specifically mentioned that digital access to older title is hurting your pre-owned software sales growth. Is that a more recent phenomenon because I know if I recall historically, new sales is really tied to the inventory. If you had the inventory you could sell it. And so, I'm just wondering how recent of a phenomenon this is?

Shane Kim

We are seeing more of the impact of that in recent months and it does have to do with how customers can get some of those older titles, the very inexpensive titles that you can get through either subscription memberships or online in a pretty heavily discounted mode."


Playstation Now and Xbox Live Game Pass (among other things) are cannibalizing GME's best segment by providing access to loads of older titles for an affordable monthly rate. The value proposition is obvious: pay ~$20 per used game, or pay ~$20 per month for access to 100+ games, with more games being added regularly. 

There's not much that GME can do about the above. It's trying to pivot towards collectibles, but has been hamstrung by a thoughtless merchandising strategy that has loaded the stores up with mountains of cheap trinkets. What they need is a more curated assortment that acknowledges the realities of small box retail.

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Jurgis

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Re: GME - Game Stop Corp
« Reply #44 on: November 30, 2018, 09:55:57 AM »
Playstation Now and Xbox Live Game Pass (among other things) are cannibalizing GME's best segment by providing access to loads of older titles for an affordable monthly rate. The value proposition is obvious: pay ~$20 per used game, or pay ~$20 per month for access to 100+ games, with more games being added regularly. 

I think you are right in general.

From a very casual gamer dumpster diving value investor point of view though, ~$20 per month is not as good as ~$20 per used game, since a game can last couple months.

But then we are getting free games on Xbox Gold, which has fewer than 100+ games, but still mostly enough. Plus one or two discounted games either directly through Xbox store or through Amazon/etc.

None of this is good for GME.
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Ahab

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Re: GME - Game Stop Corp
« Reply #45 on: November 30, 2018, 10:18:39 AM »
To me the elephant in the room for Gamestop (as a young guy and casual gamer), is that the ways people are purchasing games are fundamentally changing. First, it has taken a while, but download speeds have gotten pretty good. You can download the next Call of Duty or Madden in under an hour. I don't need to leave my house and go to the mall to make an impulse video game purchase like I had to in the 8th grade. Secondly, Amazon or Ebay fulfill basic functions in this retail category quite well. I can get pretty much any title new or used shipped quickly to my door. Third, as digital delivery becomes more and more common, Gamestop will continue to lose the buyers and sellers of used discs which allow it to generate a generous profit. Thus, I don't see a moat in terms of game price, game selection, or purchasing convenience. I think GME is a value trap, although there is a debate to be had about the speed of the decline and corresponding capital allocation. My mind is always drawn to a low multiple, but in this case I have Blockbuster and Hollywood Video for reference. There is a Greenblatt lecture in which one of his guests discusses the machinations of the video rental industry (i.e rollups and PE activity) and it was amusing to read this past summer because none of those companies are around any more. On an investment basis, disruption ultimately overwhelmed an attractive purchase price.
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Foreign Tuffett

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Re: GME - Game Stop Corp
« Reply #46 on: January 04, 2019, 07:18:51 AM »
Up strongly today on WSJ article on continuing talks with Apollo and Sycamore. Deal "could be announced by mid-February."




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Ahab

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Re: GME - Game Stop Corp
« Reply #47 on: January 09, 2019, 12:39:34 PM »
I thought I'd share these videos I came across on Youtube. Obviously, the musings of disgruntled former employees should be taken with a grain of salt. At the same time, it seems like Gamestop has alienated a sizeable number of gamers. The thing that jumped out at me from these videos and others I have watched about the company is their reliance on questionable sales tactics to make a buck.

https://www.youtube.com/watch?v=E5ZBm7VXKYY&t=826s
https://www.youtube.com/watch?v=ehlPb-rHIis&t=771s
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Foreign Tuffett

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Re: GME - Game Stop Corp
« Reply #48 on: January 09, 2019, 02:38:57 PM »
I thought I'd share these videos I came across on Youtube. Obviously, the musings of disgruntled former employees should be taken with a grain of salt. At the same time, it seems like Gamestop has alienated a sizeable number of gamers. The thing that jumped out at me from these videos and others I have watched about the company is their reliance on questionable sales tactics to make a buck.

https://www.youtube.com/watch?v=E5ZBm7VXKYY&t=826s
https://www.youtube.com/watch?v=ehlPb-rHIis&t=771s

I actually think that the plethora of highly viewed YouTube videos with "Gamestop" in the title argues for GME's continued relevance, albeit only weakly. There are several ex GME employees that make video after video on the company because that's the only way that they can keep their channels alive.

More generally, at $16 GME is, IMO, a buyout play. If you feel that a transaction will happen, then you may want to own it. If you don't think a transaction will happen, then you probably don't want to own it.
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Ahab

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Re: GME - Game Stop Corp
« Reply #49 on: January 09, 2019, 05:53:49 PM »
I think you are probably right that the fact that so many people still talk about Gamestop implies at least some continued cultural relevance. However, many of the Youtuber's trashing the company primarily focus their channel's content on game reviews & playthroughs. At the same time, the occasional video trashing Gamestop is always good for lots of comments, likes and clicks. Anecdotally, I feel that the ire many gamers are expressing towards Gamestop is not a good sign for the company's already limited moat.

In regards to buyout news, nothing to add. Hope it happens for the sake of current shareholders.
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