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General Category => Investment Ideas => Topic started by: cmattporter on July 05, 2011, 07:13:05 PM

Title: GME - Game Stop Corp
Post by: cmattporter on July 05, 2011, 07:13:05 PM
Please Comment

Matt
Title: Re: GME - Game Stop Corp
Post by: turar on April 11, 2012, 11:26:08 AM
There's already a lot written about it on Seeking Alpha and other sites, e.g.: http://seekingalpha.com/article/458881-gamestop-the-long-and-the-short  (and others: http://seekingalpha.com/symbol/gme/in-focus )

Does anyone here own GameStop?

Title: Re: GME - Game Stop Corp
Post by: VAL9000 on April 11, 2012, 12:02:14 PM
I don't, but the provided analysis tells me what I need to know:

Quote
The proof is in the margins, as the used business accounts for only a quarter of GameStop's total sales, but almost half of its profits!

Digital game delivery will be the new standard going forward.  Next gen consoles, such as the new Xbox, will primarily deliver games based on this model.  This means that the market for used games is going to zero.  Even with physical media today, many games are crippled without the use of one-time activation codes that can't be resold.

So if it's a good buy at half the profits, then it's a good buy.  Without the used game tie-in, the model is much closer to a Radio Shack or a Best Buy.

I like the used device model.  I think it has merit and should be pretty profitable.  But I also think that if it's successful, BBY and/or RSH will copy the model and eat into their profits (as BBY did with used games).

Title: Re: GME - Game Stop Corp
Post by: ritrading on June 02, 2015, 10:36:16 AM
I couldn't find a GME thread, so apologies if one exists already. I just got notice of GME outbidding Hot Topic for the GKNT acquisition. Has anyone been looking at GKNT? I'm trying to figure what GME's angle is here. It looks like they're overpaying for a company which brings in no income and I'm a bit irritated as a GME shareholder.
Title: Re: GME - Game Stop Corp
Post by: Moht on June 02, 2015, 01:18:50 PM
Yes I've followed GKNT pretty closely.

The key with Geeknet is their Geeklabs products.  They create proprietary toys, gadgets and apparel that cater to the same crowd GME caters to.  It has a 35% gross margin, versus their website products which are close to 12%.  I think that's the secret piece to it.

On the profitability side, Geeknet could be profitable.  Unfortunately, they're subscale.  Ideally, they'll be able to leverage GME's distribution facilities and logistics to sell Thinkgeek.com products.  They had huge issues in the second half of '14 with order fulfilment and website traffic.  The website crashed on Cyber Monday, to give you just one example.

My high level analysis:
$20 price = $95M enterprise value for GKNT.
2014 Gross Profit (certainly a trough number) = $24M
Price Paid: 4x Gross Profit

2014 EBIT: -$8.3M

What adjustments can we make to the combined GME/GKNT?

For one, no more G&A.  So back that out.  That's $8.3M
And technology related expenses are certainly redundant as well.  That's $8.6M
And the sales and marketing...assume there are some synergies, so lets back out just 25%.  That's $15.7M x 25%, or $3.9M

That's an adjusted EBIT of $12.5M, or EV/EBIT of 7.6x

So not a terribly aggressive paid.  And 2014 was certainly a trough year.

Another hidden asset, maybe, is the Geeknet Twitter and Facebook page.  They have like 100,000 followers and fans.  That's worth something.
Title: Re: GME - Game Stop Corp
Post by: RadMan24 on June 02, 2015, 07:59:12 PM
That was a very impressive analysis, besides, the company's capital allocation over the last few years has not been tragic, quite the opposite. I may be biased, as I love how they are always disproving the naysayers. 

Title: Re: GME - Game Stop Corp
Post by: ritrading on June 02, 2015, 09:04:15 PM
For one, no more G&A.  So back that out.  That's $8.3M
And technology related expenses are certainly redundant as well.  That's $8.6M
And the sales and marketing...assume there are some synergies, so lets back out just 25%.  That's $15.7M x 25%, or $3.9M

Thanks for the analysis. I suspect the reality may be less rosy than this due at least to some upfront costs needed to restructure. I do appreciate the angle that you've given. Costs can indeed be reduced if GKNT has a problem with distribution and can utilize GME's distribution. I guess I'm just used to Apple's way, which is strategic partnerships with suppliers so that AAPL doesn't have to share in mishaps of overpromises and underestimated costs. I would have been happier if GME went that way, but I guess in the grand scheme, GKNT is only a fraction of GME.
Title: Re: GME - Game Stop Corp
Post by: Cameron on October 09, 2017, 10:07:57 AM
Was wondering if anyone was looking at Gamestop
6x earnings
.88x b/v  1.30 industry average
5x FCF  9.92 industry average
.23 P/S  .59 industry average
ROE and Net Margins in line with the industry average at 15% and 3%
Debt to Equity stands at .35

Has a 7% dividend thats covered 2x by free cash flow.

Anything I'm missing here.
Title: Re: GME - Game Stop Corp
Post by: AzCactus on October 09, 2017, 10:13:51 AM
I have looked at this and keep looking and looking lol. 
Title: Re: GME - Game Stop Corp
Post by: DTEJD1997 on October 09, 2017, 11:18:34 AM
My big worry would be that most games are going to eventually only be downloads and will thus have no physical media.  This is going to put a pretty big dent in GME's business.

Of course, they might migrate to selling consoles (new & used), controllers, do hickey's, LCD screen repair and so on....but I think it would be a MUCH smaller business than what it is now.

Question is what does their business look like in 4-5 years?

Probably needs a HUGE discount to make it worth while.
Title: Re: GME - Game Stop Corp
Post by: Cameron on October 09, 2017, 11:23:59 AM
My big worry would be that most games are going to eventually only be downloads and will thus have no physical media.  This is going to put a pretty big dent in GME's business.

Of course, they might migrate to selling consoles (new & used), controllers, do hickey's, LCD screen repair and so on....but I think it would be a MUCH smaller business than what it is now.

Question is what does their business look like in 4-5 years?

Probably needs a HUGE discount to make it worth while.

That's the biggest question does half industry average as well as half their 5 year average free cash flow and a 7% dividend provide enough value for the risk of what the business could be. Cash flow would have to be cut in half for the dividend to not be covered, but then we've seen download only games for a while.

Still researching but it piqued my interest when it came up on a screen.
Title: Re: GME - Game Stop Corp
Post by: Cameron on October 09, 2017, 11:49:36 AM
Just wanted to throw this out there its trading at the same valuation that it did at the deepest of the Financial Crisis when it had 38% more shares outstanding and B/V has doubled. Free Cash Flow has been fluctuating slightly but otherwise has been flat for 10 years. And it didn't have a dividend during 2008.

If the only risk  that the market thinks is that this business model will be wiped out in 3-5 years it might be worth a position given that business hasn't really deteriorated in such a fashion that would give me alarm. Unless they are overextended with stores and employees.   
Title: Re: GME - Game Stop Corp
Post by: writser on October 09, 2017, 11:57:35 AM
FWIW I think book value is a useless metric here. There's 2.2b in intangibles, tangible book is close to zero, NCAV is negative and they have ~900m in debt and long term liabilities. If their business deteriorates there is no safety in the balance sheet.
Title: Re: GME - Game Stop Corp
Post by: tombgrt on October 09, 2017, 12:12:14 PM
Value trap if you ask me.

Very high level view I think it's important to know what margins would do if revenues from physical games sold took a further dive. Selling consoles and doing some repairs likely isn't going to be enough to carry operating costs that you can't easily dial back.
Title: Re: GME - Game Stop Corp
Post by: Cameron on October 09, 2017, 12:26:40 PM
"Dealer Agreements" are valued at 400m which comes from a deal they did with Cricket and Spring and the Goodwill comes from "technology brands" not to sure where they get these numbers from.

They took a 600m goodwill charge in 2012.
Title: Re: GME - Game Stop Corp
Post by: MrB on October 09, 2017, 03:44:59 PM
Also want to watch that rent coverage (EBIT + rent/rent + int). Covered 2.09x now, so ok
Title: Re: GME - Game Stop Corp
Post by: Cameron on October 09, 2017, 03:59:43 PM
Value trap if you ask me.

Very high level view I think it's important to know what margins would do if revenues from physical games sold took a further dive. Selling consoles and doing some repairs likely isn't going to be enough to carry operating costs that you can't easily dial back.

Just figured I'd ask what you mean by a value trap? usually when I think of a value trap its a company who has traded at depressed prices for a long period of time. GME has traded sideways for a year and a half and was as much as $45 about 2 years ago.
Title: Re: GME - Game Stop Corp
Post by: Cameron on October 09, 2017, 04:11:59 PM
Just from a quick calculation if net margins were cut in half FCF would look like

2016: 218.5M vs 353M
2015: 282M vs 402M
2014: 124.5M vs 393M

Dividend is covered in 2016, 2015 slightly and not in 2014. Its a cash flow story and I like assets when I invest I'm leaning towards moving on.
Title: Re: GME - Game Stop Corp
Post by: tombgrt on October 09, 2017, 11:48:32 PM
Value trap if you ask me.

Very high level view I think it's important to know what margins would do if revenues from physical games sold took a further dive. Selling consoles and doing some repairs likely isn't going to be enough to carry operating costs that you can't easily dial back.

Just figured I'd ask what you mean by a value trap? usually when I think of a value trap its a company who has traded at depressed prices for a long period of time. GME has traded sideways for a year and a half and was as much as $45 about 2 years ago.

I mean that valuation will likely remain cheap but that as fundamentals detoriate, so will stock price. As an investor, you'll get the feeling of being "trapped" as at any point in time the stock will still look attractive because stock price will have followed fundamentals down.

The fact that it was at $40 two years ago doesn't indicate it can be a value trap from this point forward. I just believe it's likely to be a value trap from here on out. Valuation by the market seems to indicate that too. But I could be entirely wrong and this thing could double as the business proves its more robust than I think.
Title: Re: GME - Game Stop Corp
Post by: kab60 on October 10, 2017, 08:19:19 AM
This reminds me of Outerwall, but here you have a lot more leverage due to a large retail footprint/leases and with Outerwall you had Coinstar as downside protection. I think it's a worse case, and a lot of people lost money on Outerwall. Ask yourself if you'd honestly consider GME if it wasn't for the divy. I don't think many would, but it's useless if things deteriorate and you end up owning an over-leveraged retailer with declining earnings (I think they're in a tough spot but not sure. Just don't see any downside protection, and what's the upside?).
Title: Re: GME - Game Stop Corp
Post by: Cameron on October 10, 2017, 08:36:17 AM
This reminds me of Outerwall, but here you have a lot more leverage due to a large retail footprint/leases and with Outerwall you had Coinstar as downside protection. I think it's a worse case, and a lot of people lost money on Outerwall. As yourself if you'd honestly consider GME if it wasn't for the divy. I don't think many would, but it's useless if things detoriate and you end up owning an overleveraged retailed with declining earnings (I think they're in a tough spot but not sure. Just don't see any downside protection, and what's the upside?).


The only thing I can think of that would make the case as to why this wouldn't fall apart is because Microsoft has a new console coming out and the business is cyclical towards new console releases.   
Title: Re: GME - Game Stop Corp
Post by: DTEJD1997 on February 06, 2018, 11:11:10 AM
Hey all:

Anybody still following this?

The CEO is stepping down for legitimate health reasons this AM and the stock hit a 10% yield briefly. 

At $16/share, it is at multi-year lows.

Clearly the business is challenged...but they have branched out a bit...

I'm also seeing a local retailer selling digital download codes.  I get TONS of these things as promotional give aways when I buy certain processor types and graphics cards.  I never even considered that they can be resold OR that there would be a demand for them.  Perhaps GME could also sell these?  Heck, I'd be willing to sell mine for a few bucks each...GME sells them for $10 or $15, everybody is happy!

GME has some debt, but it looks like it is well covered by the cash on hand, and cash flows.

Of course, they've also got leases...but I wonder if they've signed mainly shorter term leases and can let stores go empty as the leases expire?

Any thoughts?
Title: Re: GME - Game Stop Corp
Post by: GregS on February 06, 2018, 12:01:50 PM
Took a look this past week.  Two key issues bugging me:

1. Digital share of console game purchases is about 30%.  Why can't it get to around 75% like PCs?  This would hit the largest parts of their business.

2. Technology brands seems like a crappy business that got worse when AT&T bought DirecTV.  I'm not sure the diversification strategy is a good one.

Just bad business trends, so no reason to think earnings will go any higher, and easy to see how they go lower.  On the plus side, any strength in the console/gaming cycle will boost earnings, and the dividend seems well covered for now.  Stock could double and the yield would still be high.

I'm still watching and thinking about it.

Title: Re: GME - Game Stop Corp
Post by: GregS on February 06, 2018, 12:04:13 PM
Of course, they've also got leases...but I wonder if they've signed mainly shorter term leases and can let stores go empty as the leases expire?

They've said their average remaining lease term is <2.5 years, so yeah they can manage store count with runoffs and/or renegotiate rent.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on February 07, 2018, 08:07:06 AM
I think a basket type approach towards beaten down retailers might work, but trying to pick individual names in such a fast moving space is a too hard for me.

So many moving pieces here.....

New CEO with no capital allocation record to evaluate

Lots of enclosed mall-based stores that are exposed to mall traffic trends

The whole digital vs. physical games issue that GME bulls and bears have been arguing about for years. I don't think anyone really knows how quickly physical console games will decline in favor of digital distribution. For year's GME's cash machine has been buying used console games low and selling them high. By all accounts this is a business in secular decline, it's a question of forecasting how the rate of decline, and how well GME will manage the downtrend.

GME is moving more towards collectibles, something I can confirm from a couple recent mall visits. Obviously there's competition in this space from Spencer's and Hot Topic. Also, see the mall traffic issue.

Lots of operating leverage





 



Title: Re: GME - Game Stop Corp
Post by: hobbit on February 08, 2018, 01:00:52 PM
This looks absurdly undervalued..volatility in market might price it even lower..very interesting
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on March 29, 2018, 09:57:24 AM
My basic take on my the market is pricing this at a very low multiple of 2017 results:

* lots of operating leverage + declining core business (physical video game sales, particularly used games)
* console video game publishers and the two largest OEMs (Sony and Microsoft) would probably like to see GME fade away entirely
* questionable if their core business has terminal value.
* weak 2018 guidance

This might bounce at some point due to the undemanding valuation, but I think there's a good possibility that it continues to be a value trap long term.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on March 29, 2018, 10:41:40 AM
My basic take on my the market is pricing this at a very low multiple of 2017 results:

* lots of operating leverage + declining core business (physical video game sales, particularly used games)
* console video game publishers and the two largest OEMs (Sony and Microsoft) would probably like to see GME fade away entirely
* questionable if their core business has terminal value.
* weak 2018 guidance

This might bounce at some point due to the undemanding valuation, but I think there's a good possibility that it continues to be a value trap long term.

Another possibility is a private equity take out. Apollo bought Redbox in 2016, I could see them being interested in GME at the right price.
Title: Re: GME - Game Stop Corp
Post by: Nell-e on March 29, 2018, 11:36:21 AM
Could be the next Radio Shack
Title: Re: GME - Game Stop Corp
Post by: kab60 on March 29, 2018, 12:22:36 PM
I Thing Apollo is a likely suitor at the right price, but Redbox was a much better setup (and I talked with an Apollo guy who said it hs been a good investment). Redbox just needed sensible capital allocation (milk for cash), operating leverage was low and Coinstar was downside protection. GME has high operating leverage  (though short leases are a big plus), and it might be a donut eventually (no terminal value). If one considers investing, ask yourself if you'd be interested without the dividend yield.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett 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 (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.
Title: Re: GME - Game Stop Corp
Post by: doughishere 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?
Title: Re: GME - Game Stop Corp
Post by: pcm983 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
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett 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.
Title: Re: GME - Game Stop Corp
Post by: actuary 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.
Title: Re: GME - Game Stop Corp
Post by: actuary 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...
Title: Re: GME - Game Stop Corp
Post by: writser on November 23, 2018, 03:58:30 AM
Tempted to agree it seems cheap. In their earnings press release (last page (https://www.sec.gov/Archives/edgar/data/1326380/000132638018000030/a991-q4fy17earningsrelease.htm)) 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 ..
Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA 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. 
Title: Re: GME - Game Stop Corp
Post by: Ahab 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.
Title: Re: GME - Game Stop Corp
Post by: gfp 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
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett 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.

Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett 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.   





Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA 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.

Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett 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.

Title: Re: GME - Game Stop Corp
Post by: Jurgis 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.
Title: Re: GME - Game Stop Corp
Post by: Ahab 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.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett 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."




Title: Re: GME - Game Stop Corp
Post by: Ahab 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
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett 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.
Title: Re: GME - Game Stop Corp
Post by: Ahab 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.
Title: Re: GME - Game Stop Corp
Post by: IanBezek on January 10, 2019, 05:56:56 AM
I just sold my GME for a 15% loss including dividends. Happy to get out on this decent M&A bump. Company has clearly been for sale for a year now and there hasn't been a rush by PE to buy it. Business is eroding, the mobility acquisition was really bad, and malls are dying faster than I anticipated when I put this position on (2017). GME is in a LOT of bad malls. With Bon-Ton and Sears dead and JCP likely following soon, hundreds of low-end malls are closing within a few years now.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on January 18, 2019, 09:51:51 AM
9W holiday season results announced today. A close inspection of the press release reveals that it doesn't have sufficient info to enable true Y/Y comparisons. Market clearly likes that management reaffirmed adjusted EPS guidance. I'm significantly more circumspect, for the following reasons:

- Used/value segment Y/Y sales declines continue to accelerate. I continue to believe this segment is in secular decline.

- GME's accessories segment has been a huge beneficiary of the gaming headset boom. While these do have a tendency to break and need replacement, at some point the market is going to be saturated and growth will decline, or even halt entirely

- Growth in collectibles revenue is decelerating rapidly

- 2018 adjusted EPS guidance includes the Spring Mobile segment.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on January 29, 2019, 06:45:04 AM
No sale. Looks like no one wanted to finance a buyout.

"GameStopís Board has now terminated efforts to pursue a sale of the company due to the lack of available financing on terms that would be commercially acceptable to a prospective acquiror."


https://gamestop.gcs-web.com/news-releases/news-release-details/gamestop-concludes-process-pursue-sale-company (https://gamestop.gcs-web.com/news-releases/news-release-details/gamestop-concludes-process-pursue-sale-company)
Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on January 29, 2019, 11:15:22 AM
Geez, says something if Apollo/Sycamore can't figure out how to make this work. The '19 bonds look really good for safe ~9 month paper at 5.5%.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on March 04, 2019, 03:08:20 PM
To paraphrase "The American Dream" Dusty Rhodes: If you're bad, and you know you're bad, don't repurchase your own shares. I think they should just dividend out their excess cash instead of doubling down on a business that is largely in secular decline.

https://gamestop.gcs-web.com/news-releases/news-release-details/gamestop-declares-quarterly-cash-dividend-announces-intent (https://gamestop.gcs-web.com/news-releases/news-release-details/gamestop-declares-quarterly-cash-dividend-announces-intent)
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on April 02, 2019, 06:47:18 PM
Another poor earnings report. Declines in the pre-owned games business continue to accelerate. Yes, they have lots of cash on the balance sheet, but due to working capital seasonality much of that cash will be gone when they release Q1 2019 results.

http://news.gamestop.com/news-releases/news-release-details/gamestop-reports-fourth-quarter-and-fiscal-2018-results-and (http://news.gamestop.com/news-releases/news-release-details/gamestop-reports-fourth-quarter-and-fiscal-2018-results-and)

I agree with the activists that they may be able to cut some corporate-level SG&A costs, but the stores are already run on minimal hours + GME already pays low wages, even by retail standards.

Finally, based on their "2019 Outlook" we can expect more disappointment. The problem, as I've mentioned previously in this thread, is that the core of their business is in structural decline. Yes, they can sell collectibles and other things in their stores, but many (most?) of their stores are so small that they quickly become "unshoppable" when you fill them with physical merchandise.

What they need to do is be more aggressive with store closings. There is a group of customers who still do the buy-trade-buy thing. GME needs to try migrate these customers to a significantly smaller store base. 

Title: Re: GME - Game Stop Corp
Post by: valuedontlie on April 03, 2019, 05:02:48 AM
A local investor near me had great success owning a nationwide movie distributor during the height of Blockbuster's struggles. The business pooped out cash and he sucked it dry by taking distributions and keeping overhead to the bone. Wound up being a phenomenal IRR by the time the business had to permanently close.

GME sort of interesting given the B/S isn't bad. These guys have wasted a ton of money in buying back stock and that should stop immediately. This business will eventually be game over.

That said, keeping costs low and adopting a slow-playing liquidation might entice me. Take a variable payout policy and distribute all cash back to shareholders every year until the whole thing goes kaput. Recognize it for what it is and stop trying to chase "growth"

Wishful thinking...
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on June 04, 2019, 07:02:02 AM
Two predictions for GME's earnings announcement after the market close:

1) Dividend will be cut, or even eliminated completely

2) The word "transformation" will be used liberally
Title: Re: GME - Game Stop Corp
Post by: Ballerx on June 04, 2019, 09:52:04 AM
If GME actually devises a strategy that's currently under work, they might reduce the dividend slightly or not at all, and guarantee that the dividend is well covered and that the company has no intention of further reducing the dividends. The stock will likely rise by 50% to compensate for the dividend yield, and financing through equities will be the cheapest form of financing GME will ever get under its current condition. Looks like a better bet than eliminating dividends, which is only a 150 to 160 million boost per year, probably not enough if they want to go all in for e-sports. At this point, it's probably "go big or go home".
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on June 04, 2019, 01:46:45 PM
Two predictions for GME's earnings announcement after the market close:

1) Dividend will be cut, or even eliminated completely

Dividend eliminated

2) The word "transformation" will be used liberally

Second sentence of the press release: "We believe we will transform the business and shape the strategy for the GameStop of the future"

http://news.gamestop.com/news-releases/news-release-details/gamestop-reports-first-quarter-fiscal-2019-results (http://news.gamestop.com/news-releases/news-release-details/gamestop-reports-first-quarter-fiscal-2019-results)
Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on June 05, 2019, 06:33:24 AM
I think the stock will continue to trade at a significant discount to its balance sheet due to a lack of confidence in management's strategy.

Points from the conference call I picked up on:

They do not plan to make any acquisitions. There was once a time (last year?) where the chatter was that GME was going to transform itself into a holding company of various retail concepts. When they sold the AT&T locations that went out the door. Management stated they plan to stay within the video game vertical. I'm not sure there is anything they can buy that will make a difference for them in that space.

They are re-evaluating the value proposition of their used game business for their customers. This was the biggest alarm bell for me. GME does not have pricing power on used video games, the only lever they can pull is to offer games at a cheaper price. I've previously written about my views on new video game pricing - it has to go down. They will have to sell used games at lower prices, I think gross margins on that business will be 500-1,000bps lower going forward. Can they make it up on volume? That is the hope, but losing that margin takes a huge chunk of your cash flow away.

Management said they want debt / EBITDA in the range of 1x - so is that a weird guide for ~$350-400mn EBITDA? Not great.

Buybacks are off the table. The dividend goes without saying, but so many people were hoping for a buyback. Literally handfuls of articles and hundreds of comments on SeekingAlpha hoping they were going to buyback like $100mn of stock this quarter? Crazy.

On the cost savings plan - first, I'm not sure why you needed to spend the money on getting opinions from three different consulting firms on this. But its a moot point. At the end of the day, the market does not care about higher EPS or free cash flow. Why? Because this is a business where the terminal value is in question. The stock price will not react to incremental EPS accretion from this cost savings plan if revenues, comps, and gross margins continue to decline. What does an extra $100mn get you? Maybe another year or two of cash burn, but its just kicking the can down the road. They're certainly not going to distribute it to shareholders.

This has been trading at a discount to book value for a long time, and the discount is only going to get greater. When cash makes up such a substantial % of your asset value, the discount is the markets way of telling you that the cash is not going to be there and management will destroy it.

I think the stock will be pretty volatile from here on out, it could be fun to trade on earnings but thats it.
Title: Re: GME - Game Stop Corp
Post by: mwtorock on June 05, 2019, 06:59:28 AM
i am not sure i understand the discount to Balance sheet. Book value is not really meaningful for a retailer. Even tangible book value does not work as store related fixed assets are not worth much. There is not much cash left after offsetting the long term debt. Maybe we can look at net net, but 500m market cap is still far away from a net net situation.
Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on June 05, 2019, 07:09:08 AM
I agree with you, this isn't something you can look at on a NAV basis. Especially because after incorporating operating leases your residual value to equity is negative. Lots of chatter on this name has previously focused on the stock selling at a discount to tangible book, etc., but a big reason for that is because balance sheet cash is very seasonal.
Title: Re: GME - Game Stop Corp
Post by: aws on June 05, 2019, 07:27:51 AM
I'm surprised the borrow fee to short the stock is basically nothing even with 40% of the float short.  I was thinking there might be an opportunity like with SHLD to make some money betting the move to zero won't be overly quick by shorting very expensive puts, but there's no skew on puts without a high borrow fee.  Weird, considering stocks I've wanted to short with much lower short floats had much higher borrow fees.
Title: Re: GME - Game Stop Corp
Post by: MrB on June 06, 2019, 02:21:14 AM
I agree with you, this isn't something you can look at on a NAV basis. Especially because after incorporating operating leases your residual value to equity is negative. Lots of chatter on this name has previously focused on the stock selling at a discount to tangible book, etc., but a big reason for that is because balance sheet cash is very seasonal.

Fleshing this out further; it's all about discounted cash flows and book value is only relevant insofar it indicates cash flows. If I buy a company which only asset is a plot of land then the only use the stated book value has is insofar it turns out to be an accurate indicator of the cash flow when the land is eventually sold.

So the question to ask is what does book value tell me about future cash flows. In the case of a retailer in general and especially in this case book value is a poor indicator because a) stated book value v realizable book value (cash flows) is very different in the case of inventory, receivables, fixtures and fittings, etc and b) book value does not capture operating lease obligations properly.

So in some sense it's not about book value, but it's about the cash flows it generates. In the case of GME book value is a headfake.
Title: Re: GME - Game Stop Corp
Post by: Castanza on June 06, 2019, 06:41:17 AM
Anyone know if Burry still has his position? At the end of 2018 he still had 538k shares. I find it hard to believe he would still be holding, but it was also hard to believe that he bought in the first place....

I don't understand this company, their business model, future and how they manage to stay afloat. Revenue hasn't really decline too much since their peak in 2011. But cash flow continues down. And I simply don't see how they add any value to gamers. If Microsoft or Sony were to announce new consoles which didn't have disk readers you can imagine what that would do to $GME. I just don't see how his is sustainable with collectibles and console sales.

Someone convince me why I shouldn't short this company with 2021 LEAPS.
Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on June 06, 2019, 06:45:06 AM
He grew his position by 20% b/w 1Q19 and 4Q18, actually.
Title: Re: GME - Game Stop Corp
Post by: mwtorock on June 06, 2019, 07:11:14 AM
Anyone know if Burry still has his position? At the end of 2018 he still had 538k shares. I find it hard to believe he would still be holding, but it was also hard to believe that he bought in the first place....

I don't understand this company, their business model, future and how they manage to stay afloat. Revenue hasn't really decline too much since their peak in 2011. But cash flow continues down. And I simply don't see how they add any value to gamers. If Microsoft or Sony were to announce new consoles which didn't have disk readers you can imagine what that would do to $GME. I just don't see how his is sustainable with collectibles and console sales.

Someone convince me why I shouldn't short this company with 2021 LEAPS.

With 50% short and price already below 5, the risk reward does not look like favor the short side to me. Even through puts or leaps, best/worst scenario outcome rate is 100%:100%.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on July 18, 2019, 08:49:07 AM
If I were GME's CEO I would be exploring converting to this type of business model.

https://www.businessinsider.com/toys-r-us-will-open-stores-for-2019-holiday-season-2019-7 (https://www.businessinsider.com/toys-r-us-will-open-stores-for-2019-holiday-season-2019-7)

GME struggles to produce sufficient gross profits anywhere except its used games segment (which is in an increasingly rapid secular decline). However, many GME stores still get plenty of foot traffic.

Why do approach (for instance) ATVI and say "we'll charge you a flat rate and our stores will become highly cost-effective advertising and sales centers for your products. For the next 3 months the upcoming COD game will be recommended to every adult customer that enters one of our stores and our associates will attempt to upsell customers to collectors editions, etc."
Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on July 18, 2019, 09:00:52 AM
Because ATVI / EA make more money from digital downloads and have zero incentive to boost sales to GameStop where they make lower margin on products and are already unhappy with their arrangement.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on July 18, 2019, 09:20:52 AM
Because ATVI / EA make more money from digital downloads and have zero incentive to boost sales to GameStop where they make lower margin on products and are already unhappy with their arrangement.

While I agree with what you're saying, I think you are missing part of my point: It's about advertising, increased product awareness, and boosting sales in every channel. Product awareness and sales conversion are weaknesses of consumer-facing, fully digital business models. Having a meaningful physical presence can help.

Also, GaaS business models mean that publishers want to sell (or, in the case of F2P business models, have gamers download for free) an increasingly strong incentive to move as many copies of their games as possible. Why? Because, all else equal, more unit sales = more overall spending on DLC packs, loot boxes, and other digital horses***.

Would what I'm suggesting actually work? Probably not, but it's likely still a better plan than betting on e-sports.
Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on July 18, 2019, 09:54:47 AM
Because ATVI / EA make more money from digital downloads and have zero incentive to boost sales to GameStop where they make lower margin on products and are already unhappy with their arrangement.

While I agree with what you're saying, I think you are missing part of my point: It's about advertising, increased product awareness, and boosting sales in every channel. Product awareness and sales conversion are weaknesses of consumer-facing, fully digital business models. Having a meaningful physical presence can help.

Also, GaaS business models mean that publishers want to sell (or, in the case of F2P business models, have gamers download for free) an increasingly strong incentive to move as many copies of their games as possible. Why? Because, all else equal, more unit sales = more overall spending on DLC packs, loot boxes, and other digital horses***.

Would what I'm suggesting actually work? Probably not, but it's likely still a better plan than betting on e-sports.

I agree that F2P = more volume needed, but I also don't think that the ATVIs of the world are going to be very quick to slash pricing on, say, COD to the extent they need more advertising to drive volume. If anything, the publishers have shown themselves to be very slow to adapt to this thing and I don't see them suddenly altering course and ripping off the band-aid on pricing so quickly.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on August 05, 2019, 01:09:47 PM
After disparaging this company for years, I finally took a little nibble today @ $3.58. My reasoning is as follows: After adjusting for the recently completed tender offer AND excluding operating lease liabilities, the stock trades very close to NCAV, which is quite rare for a US-based retailer that isn't teetering on the verge of bankruptcy.

Konnichiwa GME, congrats on being one of the select few US companies that the market is valuing like a tiny Japanese dumpster fire.

Title: Re: GME - Game Stop Corp
Post by: mwtorock on August 06, 2019, 06:38:24 AM
Do you think the NCAV will shrink or grow? If it shrink, stock price would follow. I mean I like the balance sheet and the cheapness is very tempting, but it is hard for me to see the business turns around this year...
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on August 06, 2019, 06:49:18 AM
Do you think the NCAV will shrink or grow? If it shrink, stock price would follow. I mean I like the balance sheet and the cheapness is very tempting, but it is hard for me to see the business turns around this year...

It's probably going to shrink faster than....a.....certain part of the male anatomy in an ice bath.

I was able to sell the small position at > $3.70 this morning.

Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on August 06, 2019, 12:25:56 PM
Do you think the NCAV will shrink or grow? If it shrink, stock price would follow. I mean I like the balance sheet and the cheapness is very tempting, but it is hard for me to see the business turns around this year...

It's probably going to shrink faster than....a.....certain part of the male anatomy in an ice bath.

I was able to sell the small position at > $3.70 this morning.

Congrats on the 16839200% IRR
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on August 20, 2019, 09:03:23 AM
Michael Burry (yes, that Michael Burry) has gone activist on GME.

https://www.businesswire.com/news/home/20190819005633/en/ (https://www.businesswire.com/news/home/20190819005633/en/)
Title: Re: GME - Game Stop Corp
Post by: scorpioncapital on August 20, 2019, 01:48:58 PM
The 2nd to last 13-f shows Game stop. The last 13-f august 14 does not. Did he sell, then rebuy in?

Title: Re: GME - Game Stop Corp
Post by: stahleyp on August 20, 2019, 01:58:07 PM
The 2nd to last 13-f shows Game stop. The last 13-f august 14 does not. Did he sell, then rebuy in?

That's what I'm assuming. Probably taking tax loss harvesting if I had to guess.
Title: Re: GME - Game Stop Corp
Post by: scorpioncapital on August 20, 2019, 02:08:30 PM
Yet the press release says on Aug 16 he sent a letter to Game stop

https://www.businesswire.com/news/home/20190819005633/en/Scion-Asset-Management-Urges-GameStop-Buy-238

It also says

"As of August 19, 2019, Scion Asset Management and its affiliates own 3,000,000 shares, or 3.3%, of GameStop Corp. common stock:"

I guess he holds it, but the pattern in the 13-f looked weird. He must have rebought after the Aug 14 13-f filing?
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on August 20, 2019, 04:54:31 PM
Layoffs today at corporate office and Game Informer magazine. IIRC new CEO mentioned something on the last call about SG&A having been allowed to deleverage, so this development isn't much of a surprise.

https://kotaku.com/gamestop-lays-off-over-100-people-including-nearly-hal-1837418024
Title: Re: GME - Game Stop Corp
Post by: gfp on August 21, 2019, 03:52:12 PM
Burry is talking to Barrons reporters some more about this one.

By the way - the August 14th 13-F is not the holdings as of August 14th, it is the holdings as of the end of the second quarter, June 30th.

Yet the press release says on Aug 16 he sent a letter to Game stop

https://www.businesswire.com/news/home/20190819005633/en/Scion-Asset-Management-Urges-GameStop-Buy-238

It also says

"As of August 19, 2019, Scion Asset Management and its affiliates own 3,000,000 shares, or 3.3%, of GameStop Corp. common stock:"

I guess he holds it, but the pattern in the 13-f looked weird. He must have rebought after the Aug 14 13-f filing?
Title: Re: GME - Game Stop Corp
Post by: TBW on August 22, 2019, 01:02:47 AM
This strikes me as a bad idea.

It's not like this cash is excess.  GME has large working capital needs.  Their payables are large-ish, and inventory isn't turning over as fast as it was.  They also have debt that almost equals the cash.  Debt with declining sales and negative operating leverage is scary.  This idea would increase leverage by a lot.  Seems misguided.

In situations like this, especially with valuations this low it seems better to me to reduce debt.  That increases probability of survival, which should increase the stock.  Perhaps by a lot.  It would also increase earnings by ~20%.  The debt is due in Mar21, that is soon and I wouldn't rely on their ability to refi this bond. 

If GME melts less slowly the stock will go up.  And it will go up a lot more if they did this buyback.  However, it also increases the risk they fail sooner.  To me it seems like a risky bet, when the upside is already huge.  I don't understand that logic.

A better option here.  Tender for half of the debt, then use the cash from operations (which will increase) to buyback stock.
Title: Re: GME - Game Stop Corp
Post by: scorpioncapital on August 22, 2019, 01:13:01 AM
They could probably still retire at least 50% of the equity and still pay off at least 50% of the debt. That would seem more balanced, plus with the short interest and the credible ability to buyback even 50%, that could cause a temporary large spike despite declining metrics.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on September 10, 2019, 11:49:24 AM
Two predictions for GME's earnings announcement after the market close:

1) Dividend will be cut, or even eliminated completely

Dividend eliminated

2) The word "transformation" will be used liberally

Second sentence of the press release: "We believe we will transform the business and shape the strategy for the GameStop of the future"

Last Q I was 2/2 on predictions. Predictions for GME earnings today:

1) Excluding the tender offer, no share repurchases. Instead, they will have continued retiring debt in Q2.

2) Management will talk at length about new store concepts and making stores more experiential.

3) Management will talk at length about cutting costs.

4) Management will call out hardware weakness

5) Management will call out where we are in the gaming cycle

6) The "pre-owned and value" will show another big Y/Y gross profit decline, perhaps another -20% #


Title: Re: GME - Game Stop Corp
Post by: writser on September 10, 2019, 12:59:31 PM
This will be fun. You should distribute bingo cards next time.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on September 10, 2019, 01:55:45 PM
This will be fun. You should distribute bingo cards next time.

Ha ha ha. Maybe.

Anyway, earnings look absolutely horrible.....worse than I expected, and I expected bad.
Title: Re: GME - Game Stop Corp
Post by: RadMan24 on September 10, 2019, 05:06:22 PM
They're not that bad considering Sony and Microsoft announced new gaming consoles were coming.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on September 10, 2019, 06:55:02 PM

Last Q I was 2/2 on predictions. Predictions for GME earnings today:

1) Excluding the tender offer, no share repurchases. Instead, they will have continued retiring debt in Q2.

Correct

2) Management will talk at length about new store concepts and making stores more experiential.

Correct

3) Management will talk at length about cutting costs.

Correct

4) Management will call out hardware weakness

Correct

5) Management will call out where we are in the gaming cycle

Correct

6) The "pre-owned and value" will show another big Y/Y gross profit decline, perhaps another -20% #

-19.2%, so I missed on this one


Title: Re: GME - Game Stop Corp
Post by: EricSchleien on September 25, 2019, 09:20:19 AM
I did a recent post on GameStop on my blog. My view is they need an activist. Also not convinced they will listen to Michael Burry.

Link: https://www.gscm.co/blog/gamestop-longs-should-run-a-proxy-contest

Best,
Eric
Title: Re: GME - Game Stop Corp
Post by: roark33 on September 26, 2019, 09:27:13 AM
I read your post, what do you think the activist should do?  I think you need to make more clear what a new CEO would do?  Slowly run the business for cash?  I don't even think the company will produce any free cash flow this year and maybe not even again? 
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on December 10, 2019, 12:08:27 PM

Last Q I was 2/2 on predictions. Predictions for GME earnings today:

1) Excluding the tender offer, no share repurchases. Instead, they will have continued retiring debt in Q2.

Correct

2) Management will talk at length about new store concepts and making stores more experiential.

Correct

3) Management will talk at length about cutting costs.

Correct

4) Management will call out hardware weakness

Correct

5) Management will call out where we are in the gaming cycle

Correct

6) The "pre-owned and value" will show another big Y/Y gross profit decline, perhaps another -20% #

-19.2%, so I missed on this one


OK, time for round 3. My predictions this Q are similar to last Q.


1) Sorry Dr Mike Burry, no share repurchases. Instead, they will have continued retiring debt in Q3.



2) Management will talk about new store concepts and making stores more experiential.



3) Management will talk about cutting costs AND closing stores.



4) Management will call out hardware AND software weakness. They will mention no RDR2 equivalent release this year, as well as that this year's COD game released later in the Q



5) Management will call out where we are in the gaming cycle



6) The "pre-owned and value" will show another big Y/Y gross profit decline, perhaps another -20% #


No position
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on December 10, 2019, 01:23:18 PM
Wow, they bought back "more than one-third of our outstanding shares" even as SSS fell by 23.2%! The banzai charge theory of capital allocation. Apparently I was giving the current management team too much credit by assuming that it wouldn't risk the possibility of driving the company straight off a cliff.
Title: Re: GME - Game Stop Corp
Post by: scorpioncapital on December 10, 2019, 01:53:18 PM
By banzai you mean kamikaze perhaps? )
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on December 10, 2019, 02:12:45 PM
By banzai you mean kamikaze perhaps? )

Google it
Title: Re: GME - Game Stop Corp
Post by: roark33 on December 10, 2019, 02:14:38 PM
I like to follow GME because it is such a good case study on capital allocation.  Spring Mobile, now 34% share buyback in one quarter.  These are basically real-time lessons on corporate activity.  Some investors hate to follow bad companies, or dying ones, like this, but there are just too many great lessons to ignore the GMEs of the corporate world. 
Title: Re: GME - Game Stop Corp
Post by: thepupil on December 10, 2019, 02:29:10 PM
is my Bloomberg right? do Gamestop 2021 bonds really trade at par / 5.7% yield? I wonder if there's borrow...
Title: Re: GME - Game Stop Corp
Post by: BG2008 on December 10, 2019, 03:32:09 PM
is my Bloomberg right? do Gamestop 2021 bonds really trade at par / 5.7% yield? I wonder if there's borrow...

I would short the bonds as well at a 5.7% yield
Title: Re: GME - Game Stop Corp
Post by: aws on December 11, 2019, 06:02:37 AM
At the end of the quarter there were 67.8 million shares outstanding and according to NYSE 67.24 million shares were shorted.  Almost topped 100% there.
Title: Re: GME - Game Stop Corp
Post by: thepupil on December 11, 2019, 08:32:51 AM
traded down 6 points to $94 / 12% yield. I would still short if there was borrow and if IBKR did not require me to short $100K of face lol.

Your order has been rejected due to limitations of the corporate bond borrow market. Orders to sell short corporate bonds must result in a net settlement of at least $100000 face value.
Title: Re: GME - Game Stop Corp
Post by: matt@thesovagroup on December 11, 2019, 09:03:13 AM
One area where GME got a lot of cash flow was the decrease in inventory.  Almost $600m in working capital was freed up from the previous year and this is not from just closing stores.  This liquidation of the inventory probably won't be able to repeat next year. They are sort of burning the furniture to light the house until next Nov with the new console cycle. 

It's just a great story to watch play out.   
Title: Re: GME - Game Stop Corp
Post by: peridotcapital on December 11, 2019, 09:03:42 AM
traded down 6 points to $94 / 12% yield. I would still short if there was borrow and if IBKR did not require me to short $100K of face lol.

Your order has been rejected due to limitations of the corporate bond borrow market. Orders to sell short corporate bonds must result in a net settlement of at least $100000 face value.

GME has $290M of cash onhand (before the holiday season started) and their only debt is $419M of the March 2021 notes. Their revolver matures in late 2022, is undrawn, and has capacity of $400M. What are the odds that the business collapses so much in 2020 that they can't repay that debt between revolver capacity and cash onhand? Seems like an opportunistic buy in the low 90's...

Edit: I just read the call transcript from last night and they expect after Q4 to have >$1B of liquidity (cash plus revolver capacity), which implies Q4 free cash flow of >$300M. How on earth could they default on the 2021's?
Title: Re: GME - Game Stop Corp
Post by: matt@thesovagroup on December 11, 2019, 09:12:34 AM
Some people always wonder why companies don't just liquidate when their time has come.  I think the answer is obviously they like to keep their "empire". 

GME: As of November 2, 2019, we classified our corporate aircraft, with an estimated fair value, less costs to sell, of $12.8 million as assets held for sale

This seems like the right decision now, but you have to wonder if this should have been done much earlier and what other things like this are hiding in their corporate SG&A. 

Title: Re: GME - Game Stop Corp
Post by: dwy000 on December 11, 2019, 09:31:31 AM
traded down 6 points to $94 / 12% yield. I would still short if there was borrow and if IBKR did not require me to short $100K of face lol.

Your order has been rejected due to limitations of the corporate bond borrow market. Orders to sell short corporate bonds must result in a net settlement of at least $100000 face value.

GME has $290M of cash onhand (before the holiday season started) and their only debt is $419M of the March 2021 notes. Their revolver matures in late 2022, is undrawn, and has capacity of $400M. What are the odds that the business collapses so much in 2020 that they can't repay that debt between revolver capacity and cash onhand? Seems like an opportunistic buy in the low 90's...

Edit: I just read the call transcript from last night and they expect after Q4 to have >$1B of liquidity (cash plus revolver capacity), which implies Q4 free cash flow of >$300M. How on earth could they default on the 2021's?

If they use all the cash to buy back stock.  I would have said that was a crazy capital allocation decision before last quarter.
Title: Re: GME - Game Stop Corp
Post by: dcollon on December 11, 2019, 11:08:43 AM
I just inquired on the cost to borrow GME.  I was quoted 34.5%.
Title: Re: GME - Game Stop Corp
Post by: thepupil on December 11, 2019, 11:32:36 AM
traded down 6 points to $94 / 12% yield. I would still short if there was borrow and if IBKR did not require me to short $100K of face lol.

Your order has been rejected due to limitations of the corporate bond borrow market. Orders to sell short corporate bonds must result in a net settlement of at least $100000 face value.

GME has $290M of cash onhand (before the holiday season started) and their only debt is $419M of the March 2021 notes. Their revolver matures in late 2022, is undrawn, and has capacity of $400M. What are the odds that the business collapses so much in 2020 that they can't repay that debt between revolver capacity and cash onhand? Seems like an opportunistic buy in the low 90's...

Edit: I just read the call transcript from last night and they expect after Q4 to have >$1B of liquidity (cash plus revolver capacity), which implies Q4 free cash flow of >$300M. How on earth could they default on the 2021's?

https://www.sec.gov/Archives/edgar/data/104599/000010459908000056/ccs063008_10q.txt

this is Circuit City's 10Q in the quarter before they filed for BK, they filed in November 2008. As of June 2008, they had virtually no long term financial debt, significant net current assets (cash & inventory less payables and stuff), stockholder equity of $1.3 billion, they filed 5 months later, because their trade credit was pulled before the holiday season and they faced a liquidity crisis.

I think stranger things could happen then a retailer that's shedding sales at a 20% rate files for bankruptcy and or has trouble refinancing its unsecured bonds, regardless of the current state of the balance sheet.

I wouldn't want to be a lender to GME at any price that doesn't allow for huge upside.

At $94/11%, I'd happily lose the 14% cumulate or whatever on a short position in the base case they are able to pay off the bond as a general hedge against things in far better fundamental shape. Of course at $100 / 5.7% (yesterday's price) it was even more assymetric so if it trades back to par, maybe i'll consider shorting $100K. Even with fixed upside thought, that's just a big notional position for something that probably has some borrow cost built on top if it.
Title: Re: GME - Game Stop Corp
Post by: peridotcapital on December 11, 2019, 12:01:45 PM

https://www.sec.gov/Archives/edgar/data/104599/000010459908000056/ccs063008_10q.txt

this is Circuit City's 10Q in the quarter before they filed for BK, they filed in November 2008. As of June 2008, they had virtually no long term financial debt, significant net current assets (cash & inventory less payables and stuff), stockholder equity of $1.3 billion, they filed 5 months later, because their trade credit was pulled before the holiday season and they faced a liquidity crisis.

I think stranger things could happen then a retailer that's shedding sales at a 20% rate files for bankruptcy and or has trouble refinancing its unsecured bonds, regardless of the current state of the balance sheet.

I wouldn't want to be a lender to GME at any price that doesn't allow for huge upside.


Fair point, but the time period in question (November 2008) and what was going on with the economy and credit markets at the time probably had a lot to do with that particular situation. Assuming a similar economic environment to today, that seems highly unlikely, but you are right, unlikely things can happen at an unlucky time.
Title: Re: GME - Game Stop Corp
Post by: RadMan24 on December 12, 2019, 11:46:18 AM
traded down 6 points to $94 / 12% yield. I would still short if there was borrow and if IBKR did not require me to short $100K of face lol.

Your order has been rejected due to limitations of the corporate bond borrow market. Orders to sell short corporate bonds must result in a net settlement of at least $100000 face value.

GME has $290M of cash onhand (before the holiday season started) and their only debt is $419M of the March 2021 notes. Their revolver matures in late 2022, is undrawn, and has capacity of $400M. What are the odds that the business collapses so much in 2020 that they can't repay that debt between revolver capacity and cash onhand? Seems like an opportunistic buy in the low 90's...

Edit: I just read the call transcript from last night and they expect after Q4 to have >$1B of liquidity (cash plus revolver capacity), which implies Q4 free cash flow of >$300M. How on earth could they default on the 2021's?

https://www.sec.gov/Archives/edgar/data/104599/000010459908000056/ccs063008_10q.txt

this is Circuit City's 10Q in the quarter before they filed for BK, they filed in November 2008. As of June 2008, they had virtually no long term financial debt, significant net current assets (cash & inventory less payables and stuff), stockholder equity of $1.3 billion, they filed 5 months later, because their trade credit was pulled before the holiday season and they faced a liquidity crisis.

I think stranger things could happen then a retailer that's shedding sales at a 20% rate files for bankruptcy and or has trouble refinancing its unsecured bonds, regardless of the current state of the balance sheet.

I wouldn't want to be a lender to GME at any price that doesn't allow for huge upside.

At $94/11%, I'd happily lose the 14% cumulate or whatever on a short position in the base case they are able to pay off the bond as a general hedge against things in far better fundamental shape. Of course at $100 / 5.7% (yesterday's price) it was even more assymetric so if it trades back to par, maybe i'll consider shorting $100K. Even with fixed upside thought, that's just a big notional position for something that probably has some borrow cost built on top if it.


Are we really comparing Circuit City which had only $90m in cash and $110m in debt to Gamestop which has $290m in cash and $420m in debt after spending $180m on buybacks?

Gee, wonder which one would struggle of there was a credit crisis.
Title: Re: GME - Game Stop Corp
Post by: blainehodder on December 12, 2019, 12:05:47 PM
traded down 6 points to $94 / 12% yield. I would still short if there was borrow and if IBKR did not require me to short $100K of face lol.

Your order has been rejected due to limitations of the corporate bond borrow market. Orders to sell short corporate bonds must result in a net settlement of at least $100000 face value.

GME has $290M of cash onhand (before the holiday season started) and their only debt is $419M of the March 2021 notes. Their revolver matures in late 2022, is undrawn, and has capacity of $400M. What are the odds that the business collapses so much in 2020 that they can't repay that debt between revolver capacity and cash onhand? Seems like an opportunistic buy in the low 90's...

Edit: I just read the call transcript from last night and they expect after Q4 to have >$1B of liquidity (cash plus revolver capacity), which implies Q4 free cash flow of >$300M. How on earth could they default on the 2021's?

https://www.sec.gov/Archives/edgar/data/104599/000010459908000056/ccs063008_10q.txt

this is Circuit City's 10Q in the quarter before they filed for BK, they filed in November 2008. As of June 2008, they had virtually no long term financial debt, significant net current assets (cash & inventory less payables and stuff), stockholder equity of $1.3 billion, they filed 5 months later, because their trade credit was pulled before the holiday season and they faced a liquidity crisis.

I think stranger things could happen then a retailer that's shedding sales at a 20% rate files for bankruptcy and or has trouble refinancing its unsecured bonds, regardless of the current state of the balance sheet.

I wouldn't want to be a lender to GME at any price that doesn't allow for huge upside.

At $94/11%, I'd happily lose the 14% cumulate or whatever on a short position in the base case they are able to pay off the bond as a general hedge against things in far better fundamental shape. Of course at $100 / 5.7% (yesterday's price) it was even more assymetric so if it trades back to par, maybe i'll consider shorting $100K. Even with fixed upside thought, that's just a big notional position for something that probably has some borrow cost built on top if it.


Are we really comparing Circuit City which had only $90m in cash and $110m in debt to Gamestop which has $290m in cash and $420m in debt after spending $180m on buybacks?

Gee, wonder which one would struggle of there was a credit crisis.

Would you rather a Blockbuster comparison which is probably more apt? This is 2019. The internet exists. It is in game creators' best interest to cut out GME. What could possibly turn the revenue trend around? What melting retail company has managed to close down expediently to return cash to shareholders in the face of complete technical obsolescence regardless of balance sheet strength?
Title: Re: GME - Game Stop Corp
Post by: thepupil on December 12, 2019, 12:16:30 PM
traded down 6 points to $94 / 12% yield. I would still short if there was borrow and if IBKR did not require me to short $100K of face lol.

Your order has been rejected due to limitations of the corporate bond borrow market. Orders to sell short corporate bonds must result in a net settlement of at least $100000 face value.

GME has $290M of cash onhand (before the holiday season started) and their only debt is $419M of the March 2021 notes. Their revolver matures in late 2022, is undrawn, and has capacity of $400M. What are the odds that the business collapses so much in 2020 that they can't repay that debt between revolver capacity and cash onhand? Seems like an opportunistic buy in the low 90's...

Edit: I just read the call transcript from last night and they expect after Q4 to have >$1B of liquidity (cash plus revolver capacity), which implies Q4 free cash flow of >$300M. How on earth could they default on the 2021's?

https://www.sec.gov/Archives/edgar/data/104599/000010459908000056/ccs063008_10q.txt

this is Circuit City's 10Q in the quarter before they filed for BK, they filed in November 2008. As of June 2008, they had virtually no long term financial debt, significant net current assets (cash & inventory less payables and stuff), stockholder equity of $1.3 billion, they filed 5 months later, because their trade credit was pulled before the holiday season and they faced a liquidity crisis.

I think stranger things could happen then a retailer that's shedding sales at a 20% rate files for bankruptcy and or has trouble refinancing its unsecured bonds, regardless of the current state of the balance sheet.

I wouldn't want to be a lender to GME at any price that doesn't allow for huge upside.

At $94/11%, I'd happily lose the 14% cumulate or whatever on a short position in the base case they are able to pay off the bond as a general hedge against things in far better fundamental shape. Of course at $100 / 5.7% (yesterday's price) it was even more assymetric so if it trades back to par, maybe i'll consider shorting $100K. Even with fixed upside thought, that's just a big notional position for something that probably has some borrow cost built on top if it.


Are we really comparing Circuit City which had only $90m in cash and $110m in debt to Gamestop which has $290m in cash and $420m in debt after spending $180m on buybacks?

Gee, wonder which one would struggle of there was a credit crisis.

you are welcome to buy the bond @ $95 and make 900 bps over the treasury if you think it's such a sure thing.

Do you think the AR/Credit departments at GME's vendors are having discussions about GME's survival? I think they would be, but I could be wrong.

Retailers have a lot more liabilities than debt. they have landlords (I know GME has been shortening lease term for years but they still have minimum payments), vendors, etc.

I'd either be in the equity and get paid a multibagger if the rebound comes as it eats up all the shares or not play.

to be short the stock or long the bonds makes little sense to me. they are both short volatility positions in an fundamental situation of extreme volatility (collapsing sales and share count).

Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on December 12, 2019, 12:37:52 PM
Actually, the Circuit City chapter 11 process is a good case study on how retailers fall into bankruptcy. With a little imagination, it is applicable to GME today.

Here are some fun quotes, along with my commentary, from Circuit City's first day filing on November 10th, 2008.

In the September [2008] 10-Q, the Company stated that its books and records reflected total combined assets of approximately $3,400,080,000 and total combined liabilities of approximately $2,323,328,000.

I wonder how many people calculated book value of approximately $1 billion at the time and assumed there was a tangible asset support...GME currently has total assets of $3.1 billion and liabilities of $2.5 billion - ~$600 million book value could seem attractive to some people.

[Over the same time period,] the Company experienced additional losses of approximately $403,989,000. The largest driver of declining performance was a double-digit decline in in-store traffic from the previous year.

Sounds analogous to the declines in same-store-sales and operating losses GameStop is currently experiencing.

[Circuit City] pursued three primary [turnaround] objectives...restore its brand...discontinue unprofitable or unnecessary stores and markets through store closings and layoffs. Finally, the Company sought to preserve and, in some instances, improve vendor relationships.

This is pretty much retail turnaround 101 - all of the above have been referenced by GME management in some fashion over the past six months.
 
[The] chapter 11 filing is due to three factors...1) erosion of vendor confidence; 2) decreased liquidity, and 3) a global economic crisis.

Not withstanding a tail event such as 3), points 1) and 2) are how every retailer declares bankruptcy - see Toys'R'Us.

Various merchandise vendors restricted the Company's available trade credit and reduced payment terms; in some instances, the Company's terms were changed to cash in advance...the Company found it more difficult to sustain adequate product inventory and other store supply levels.

As has already been mentioned in this thread, the video game publishers hate GameStop - they want more of the economics for themselves. They'd, I think, be more than happy to put the squeeze on GameStop's vendor terms. Lets wait and see how Q4 and holiday sales go...if they are bad, GameStop will likely have to begin posting cash advances for product during their working capital intensive Q1 when they need to replenish all of their store inventory.

Significantly decreased availability under the Revolving Credit Facility...to pay vendors, the Company was forced to fund such payments, in part, through borrowings under the Revolving Credit Facility...because the Company was unable to purchase as much inventory as it otherwise would have had vendors not restricted trade credit and terms, the Debtor's availability under the Revolving Credit Facility, which is calculated based on, among other factors, inventory levels, decreased...In October, 2008, the Agent conducted a valuation of the Company's inventory. Using the new valuation, the calculation under the Revolving Credit Facility resulted in further decreased availability.

This is the classic catch-22 of asset based revolving credit facilities used by retail companies...vendors want more cash up front so to make the payments you fund with your credit facility...but, to turn around your business you're closing stores also and reducing the levels of inventory you need...the levels of which are what your credit facility availability is based off of.

For the third quarter, GameStop had credit facility availability of $413 million. This amount is calculated as 92.5% of the borrowing base, which is then implied to be $446 million. The credit facility borrowing base is secured by all U.S. inventories. GameStop doesn't disclose this exactly, but Q3 inventory was $1.3 billion and U.S. sales make up ~70% of total sales, so lets call U.S. inventory approximately $900 million. To arrive at the borrowing base the banks are valuing this inventory at approximately 50 cents on the dollar, which really tells you something about GameStop's book value. If comparable store sales, total store sales, and most importantly, the gross margin on used video game sales continues to decline I wouldn't be surprised to see the banks reassess their valuation of inventory down to 25 - 30 cents on the dollar, and that would have a massive affect on GameStop's credit facility availability and their ability to fund, what I expect to be, significantly stricter vendor terms...see, catch-22.

Additional liquidity was not available through traditional channels, such as the credit markets...due to the widespread liquidity crisis...drastic effect on sales because 75% of the Company's sales are generated through credit card purchases.

This section is not totally comparable because there was a credit crisis which really did seize up traditional avenues of capital. Given the growth of non-bank private credit firms I am certain GameStop could find an, albeit very expensive, source of emergency capital if they really needed it. There are some really creative guys out there when it comes to that. But, the other point which is interesting is how much of Circuit City's sales were generated through credit card purchases. I'm not sure if GameStop discloses this, but I'm sure its probably a comparable amount in this case.

Without immediate relief, the Company is concerned that it will not receive goods for Black Friday and the upcoming holiday season.

Here is the crux of the issue...Circuit City filed bankruptcy because they needed to obtain emergency financing in the form of a DIP so they could stock their shelves for the busy Q4 holiday season. It really doesn't take much imagination to see the path that GameStop is going down and think they maybe they might find themselves in a similar situation when it comes time to prepare their store base for the 2020 holiday season...

So, hopefully this illuminates that there really are a lot of similarities between Circuit City and GameStop. I really don't think anyone is paying attention to the vendor financing / credit facility availability angle of GameStop...
Title: Re: GME - Game Stop Corp
Post by: Gregmal on December 12, 2019, 12:58:47 PM
While GME is definitely challenged, the H2 2008 comparison is laughable. Pretty much everyone was having a liquidity crisis at that point in time.
Title: Re: GME - Game Stop Corp
Post by: johnny on December 12, 2019, 01:56:05 PM
The vendor confidence thing is a key component here that is different. Gamestop's vendors are either very well capitalized hardware companies (who are not going to be put in a position to "pass down" any liquidity anxiety) or software companies who have almost no cash basis in the inventory being supplied. $100M of retail inventory probably represents $10M or less in actual dollars spent by any game publisher, so there aren't many counterparties here that are staying up at night wondering how they're going to make payroll if Gamestop fails a bit faster than anticipated.

Compare to a car audio manufacturer who, in the midst of a crisis, may be seriously fucked if Circuit City decides to delay paying them for head-units or whatever low-margin gear they had to finance the manufacture of two quarters ago.

A few years ago I considered it obvious that Gamestop was doomed, in large part because everybody would be eager to cut out the middleman. Now I think it's clearer to the software side that they may not be winners in the new world. Online distribution empowers platform owners, but leaves individual software creators in a pretty weak position that seems to result in highly promotional pricing. In other words, I think on the software side a lot of players are realizing they may be longing for the days when Gamestop was selling their titles for $50 and taking a 50% cut. I'm not saying this is going to stop the transition, simply that there may be less incentive to accelerate the transition by some of the players.

That leaves the platform owners who are indisputably soaking up the power and margin from the digitalization trend. Would Sony or Microsoft consider a high-visibility implosion of Gamestop to be in their interests? It's not obvious to me what the answer here is. Might it be perceived as taking a bit of shine off of their next-gen console launches? There is some marketing value to having a bunch of local NBC affiliates do the exact same story on "look at this line of tents in anticipation of the launch of Product X". And Gamestop is obviously an important piece of that puzzle. To contextualize: my guess is that the aggregate marketing spend for gaming in 2020 will be more than Gamestop's current market cap. It's not nothing; it at least suggests to me they might be incentivized to allow for Gamestop to gracefully decline and (attempt to) execute their strategy of buying back 150% of their shares. Again, the fact that the full digitalization of the industry is more or less inevitable means the players that stand to benefit from it may not feel any need to push it forward by a year or two.

Finally, I've come to appreciate that substantially less than 100% of Gamestop's sales will be "made up" in digital. As gamers move more and more towards digital, Gamestop increasingly becomes a specialty channel for price low information and price-insensitive purchasers. Grandpa and Grandma run into Gamestop and spend $59.99 on a game for a 9 year old who could have easily executed the purchase for $30 if they had their own bank account, etc. Everybody is sort of a winner in this scenario, except the boomers. I know my nephew owns multiple licenses of the same game, in large part because of how totally befuddled boomers seem to be by this multi-modal software distribution world.

None of this should be considered a long argument by any means. I'm just thinking solely about vendor incentives in 2019-2020. I hope it is obvious I also know nothing about Circuit City except what was mentioned in this thread, as I was spending all of my time actually playing video games back when that happened.
Title: Re: GME - Game Stop Corp
Post by: Spekulatius on December 12, 2019, 02:42:11 PM
While GME is definitely challenged, the H2 2008 comparison is laughable. Pretty much everyone was having a liquidity crisis at that point in time.

There are pockets even right now, where liquidity is an issue. Failing retailers and mortgage MBS for failing malls are two  pockets where liquidity has been disappearing.
Title: Re: GME - Game Stop Corp
Post by: thepupil on December 16, 2019, 08:10:16 AM
bonds are back up to $98 / high 7% yield. I  ultimately have decided to not short them because IBKR is charging too much margin against them ($75K of margin to be short $100K par). I don't understand this given the low maximum loss in being short a short duration bond at $98 / $100. Maybe it's because my taxable account is not big enough, but just wanted to alert anyone to this as an interesting hedge to HY/general market. I think it's low probability of default, but the downside is you lose 7% per year pre-tax.

Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on December 16, 2019, 08:24:37 AM
bonds are back up to $98 / high 7% yield. I  ultimately have decided to not short them because IBKR is charging too much margin against them ($75K of margin to be short $100K par). I don't understand this given the low maximum loss in being short a short duration bond at $98 / $100. Maybe it's because my taxable account is not big enough, but just wanted to alert anyone to this as an interesting hedge to HY/general market. I think it's low probability of default, but the downside is you lose 7% per year pre-tax.

I see bonds trading at 97 1/4 today with bids at 96 3/4 and lower - slight semantic, your overall point remains. It was sort of a no brainer to hit the bid when the bonds dropped to ~92/93...there was a lot of insurance fund / sleepy HY selling and the credit has entered "crossover" zone and guys are now really starting to do work on GameStop. I'd expect the bonds to keep trading lower after what will most likely be an awful holiday season. Next catalyst date should be the 2nd or 3rd week of January when holiday results are released in an 8-K.

The guys who are buying don't really understand the problems the business has and they've totally bought the ~$200+ million of free cash flow by the end of the year line - its just not going to happen.   
Title: Re: GME - Game Stop Corp
Post by: RadMan24 on December 16, 2019, 02:53:07 PM
traded down 6 points to $94 / 12% yield. I would still short if there was borrow and if IBKR did not require me to short $100K of face lol.

Your order has been rejected due to limitations of the corporate bond borrow market. Orders to sell short corporate bonds must result in a net settlement of at least $100000 face value.

GME has $290M of cash onhand (before the holiday season started) and their only debt is $419M of the March 2021 notes. Their revolver matures in late 2022, is undrawn, and has capacity of $400M. What are the odds that the business collapses so much in 2020 that they can't repay that debt between revolver capacity and cash onhand? Seems like an opportunistic buy in the low 90's...

Edit: I just read the call transcript from last night and they expect after Q4 to have >$1B of liquidity (cash plus revolver capacity), which implies Q4 free cash flow of >$300M. How on earth could they default on the 2021's?

https://www.sec.gov/Archives/edgar/data/104599/000010459908000056/ccs063008_10q.txt

this is Circuit City's 10Q in the quarter before they filed for BK, they filed in November 2008. As of June 2008, they had virtually no long term financial debt, significant net current assets (cash & inventory less payables and stuff), stockholder equity of $1.3 billion, they filed 5 months later, because their trade credit was pulled before the holiday season and they faced a liquidity crisis.

I think stranger things could happen then a retailer that's shedding sales at a 20% rate files for bankruptcy and or has trouble refinancing its unsecured bonds, regardless of the current state of the balance sheet.

I wouldn't want to be a lender to GME at any price that doesn't allow for huge upside.

At $94/11%, I'd happily lose the 14% cumulate or whatever on a short position in the base case they are able to pay off the bond as a general hedge against things in far better fundamental shape. Of course at $100 / 5.7% (yesterday's price) it was even more assymetric so if it trades back to par, maybe i'll consider shorting $100K. Even with fixed upside thought, that's just a big notional position for something that probably has some borrow cost built on top if it.


Are we really comparing Circuit City which had only $90m in cash and $110m in debt to Gamestop which has $290m in cash and $420m in debt after spending $180m on buybacks?

Gee, wonder which one would struggle of there was a credit crisis.

Would you rather a Blockbuster comparison which is probably more apt? This is 2019. The internet exists. It is in game creators' best interest to cut out GME. What could possibly turn the revenue trend around? What melting retail company has managed to close down expediently to return cash to shareholders in the face of complete technical obsolescence regardless of balance sheet strength?


Gamestop's retail demise has been talked about for almost a decade. No one has been right. Sure, Gamestop might not exist one day, but using this whole Circuit City, Blockbuster example time in time again on Gamestop isn't working. You should stop and ask yourself why that is.
Title: Re: GME - Game Stop Corp
Post by: thepupil on December 16, 2019, 03:17:19 PM
Were there spin-offs or big dividends?

The stock is down ~91% on a price basis from peak  over 5 years.

Recognizing that investment is forward looking, iíd say those calling for the companyís demise have been correct, no?

 I am confused why you say that the comparisons to defunct retaileres arenít working. If anything GME is exhibiting far greater fundamental deterioration than CC did with its -6% comps pre BK (I know people are deferring console purchases, but it illustrates GMEís fundamental cyclicality)

I actually have no opinion on how things shake out, just think itís dumb to lend to this company to get through another holiday season  to make 7-8%, particularly with the company on a mission to distribute its cash to equity holders

If I were long stock, Iíd still short the bonds.

Why is the comparison to a secularly challenged retailer that went bankrupt despite little financial debt not relevant?
Title: Re: GME - Game Stop Corp
Post by: RadMan24 on December 16, 2019, 03:43:32 PM
Were there spin-offs or big dividends?

The stock is down ~91% on a price basis from peak  over 5 years.

Recognizing that investment is forward looking, iíd say those calling for the companyís demise have been correct, no?

 I am confused why you say that the comparisons to defunct retaileres arenít working. If anything GME is exhibiting far greater fundamental deterioration than CC did with its -6% comps pre BK (I know people are deferring console purchases, but it illustrates GMEís fundamental cyclicality)

I actually have no opinion on how things shake out, just think itís dumb to lend to this company to get through another holiday season  to make 7-8%, particularly with the company on a mission to distribute its cash to equity holders

If I were long stock, Iíd still short the bonds.

Why is the comparison to a secularly challenged retailer that went bankrupt despite little financial debt not relevant?

Right, let's play your game. Where was everyone expecting Gamestop's demise when the stock was in its 40s, 30s? They were all over gamestop when it was in its 20s and high-teens in 2012 only to get burned like a crisp. Same folks, different people, are predicting the same at the end of a console cycle. Good luck!
Title: Re: GME - Game Stop Corp
Post by: thepupil on December 16, 2019, 03:51:37 PM
I have literally no position here but am genuinely confused by your tone and donít quite understand your view.

What game am I playing?
Title: Re: GME - Game Stop Corp
Post by: Spekulatius on December 16, 2019, 03:52:17 PM


Right, let's play your game. Where was everyone expecting Gamestop's demise when the stock was in its 40s, 30s? They were all over gamestop when it was in its 20s and high-teens in 2012 only to get burned like a crisp. Same folks, different people, are predicting the same at the end of a console cycle. Good luck!

Most people just stayed away from stocks like GME. The issues with GME were apparent a long time ago:
 https://www.siliconinvestor.com/readmsg.aspx?msgid=26866701&srchtxt=GME (https://www.siliconinvestor.com/readmsg.aspx?msgid=26866701&srchtxt=GME)
Title: Re: GME - Game Stop Corp
Post by: Gregmal on December 16, 2019, 04:04:06 PM
And to boot, most the people shorting GME in 2012 or so were also likely shorting Best Buy. Like has been said plenty of times, shorting is not really a great game to play. The deck is stacked, and while I doubt anyone is ever able to put together an honest study, I'd wager you're better off going to the casino than shorting.
Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on December 16, 2019, 04:04:48 PM
Were there spin-offs or big dividends?

The stock is down ~91% on a price basis from peak  over 5 years.

Recognizing that investment is forward looking, iíd say those calling for the companyís demise have been correct, no?

 I am confused why you say that the comparisons to defunct retaileres arenít working. If anything GME is exhibiting far greater fundamental deterioration than CC did with its -6% comps pre BK (I know people are deferring console purchases, but it illustrates GMEís fundamental cyclicality)

I actually have no opinion on how things shake out, just think itís dumb to lend to this company to get through another holiday season  to make 7-8%, particularly with the company on a mission to distribute its cash to equity holders

If I were long stock, Iíd still short the bonds.

Why is the comparison to a secularly challenged retailer that went bankrupt despite little financial debt not relevant?

Right, let's play your game. Where was everyone expecting Gamestop's demise when the stock was in its 40s, 30s? They were all over gamestop when it was in its 20s and high-teens in 2012 only to get burned like a crisp. Same folks, different people, are predicting the same at the end of a console cycle. Good luck!

Here are two GME short theses from 2013 and 2014, one with the stock at $33 and the other at $37.

https://www.valueinvestorsclub.com/idea/GAMESTOP_CORP/3191613313
https://www.valueinvestorsclub.com/idea/GAMESTOP_CORP/3808584834
Title: Re: GME - Game Stop Corp
Post by: cameronfen on December 16, 2019, 05:00:50 PM
And to boot, most the people shorting GME in 2012 or so were also likely shorting Best Buy. Like has been said plenty of times, shorting is not really a great game to play. The deck is stacked, and while I doubt anyone is ever able to put together an honest study, I'd wager you're better off going to the casino than shorting.

Ya but if I'm understanding him right thepupil's whole point is shorting bonds and shorting stock are two different games.  Your downside is capped with bonds unlike with the equity. 
Title: Re: GME - Game Stop Corp
Post by: Gregmal on December 16, 2019, 05:11:17 PM
And to boot, most the people shorting GME in 2012 or so were also likely shorting Best Buy. Like has been said plenty of times, shorting is not really a great game to play. The deck is stacked, and while I doubt anyone is ever able to put together an honest study, I'd wager you're better off going to the casino than shorting.

Ya but if I'm understanding him right thepupil's whole point is shorting bonds and shorting stock are two different games.  Your downside is capped with bonds unlike with the equity.

Thats probably the right way to play it. Perhaps even hedge a bit more by going long a small fraction % of shares relative to the bond.
Title: Re: GME - Game Stop Corp
Post by: RadMan24 on December 18, 2019, 10:09:49 AM
Were there spin-offs or big dividends?

The stock is down ~91% on a price basis from peak  over 5 years.

Recognizing that investment is forward looking, iíd say those calling for the companyís demise have been correct, no?

 I am confused why you say that the comparisons to defunct retaileres arenít working. If anything GME is exhibiting far greater fundamental deterioration than CC did with its -6% comps pre BK (I know people are deferring console purchases, but it illustrates GMEís fundamental cyclicality)

I actually have no opinion on how things shake out, just think itís dumb to lend to this company to get through another holiday season  to make 7-8%, particularly with the company on a mission to distribute its cash to equity holders

If I were long stock, Iíd still short the bonds.

Why is the comparison to a secularly challenged retailer that went bankrupt despite little financial debt not relevant?

Right, let's play your game. Where was everyone expecting Gamestop's demise when the stock was in its 40s, 30s? They were all over gamestop when it was in its 20s and high-teens in 2012 only to get burned like a crisp. Same folks, different people, are predicting the same at the end of a console cycle. Good luck!

Here are two GME short theses from 2013 and 2014, one with the stock at $33 and the other at $37.

https://www.valueinvestorsclub.com/idea/GAMESTOP_CORP/3191613313
https://www.valueinvestorsclub.com/idea/GAMESTOP_CORP/3808584834

Thanks for sharing. The short in 2013 was burned, as I mentioned. The one in 2014, you'd have to short and cover dividends until 2016 to breakeven on that trade. Even then, you didn't bank any real profits unless you held that short trade all the way until recently.

Let's also not forget the board/CEO attempted to diversify, incorrectly, into ATT reseller stores. They had put the cash to work to diversify but failed.

Today, the bull thesis is simple - consoles continue to have discs.

The bear case, going to zero, presumes that this isn't the case.

The odds are not in the shorts favor.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on December 18, 2019, 11:15:15 AM
Were there spin-offs or big dividends?

The stock is down ~91% on a price basis from peak  over 5 years.

Recognizing that investment is forward looking, iíd say those calling for the companyís demise have been correct, no?

 I am confused why you say that the comparisons to defunct retaileres arenít working. If anything GME is exhibiting far greater fundamental deterioration than CC did with its -6% comps pre BK (I know people are deferring console purchases, but it illustrates GMEís fundamental cyclicality)

I actually have no opinion on how things shake out, just think itís dumb to lend to this company to get through another holiday season  to make 7-8%, particularly with the company on a mission to distribute its cash to equity holders

If I were long stock, Iíd still short the bonds.

Why is the comparison to a secularly challenged retailer that went bankrupt despite little financial debt not relevant?

Right, let's play your game. Where was everyone expecting Gamestop's demise when the stock was in its 40s, 30s? They were all over gamestop when it was in its 20s and high-teens in 2012 only to get burned like a crisp. Same folks, different people, are predicting the same at the end of a console cycle. Good luck!

Here are two GME short theses from 2013 and 2014, one with the stock at $33 and the other at $37.

https://www.valueinvestorsclub.com/idea/GAMESTOP_CORP/3191613313
https://www.valueinvestorsclub.com/idea/GAMESTOP_CORP/3808584834

Thanks for sharing. The short in 2013 was burned, as I mentioned. The one in 2014, you'd have to short and cover dividends until 2016 to breakeven on that trade. Even then, you didn't bank any real profits unless you held that short trade all the way until recently.

Let's also not forget the board/CEO attempted to diversify, incorrectly, into ATT reseller stores. They had put the cash to work to diversify but failed.

Today, the bull thesis is simple - consoles continue to have discs.

The bear case, going to zero, presumes that this isn't the case.


The odds are not in the shorts favor.

That's a straw man. I've read lots of bearish comments on GME, but don't recall anyone arguing that the next generation consoles would not have disc drives. Certainly not recently anyway, since it's all but confirmed that they both will, although it's rumored that Microsoft will release a lower price next gen device that lacks a disc drive.

The basic bear case is that digital is taking 5% plus share of the console game market each year. This is gradually decimating GME's new software and used and value software segments. The inherent operating leverage means that a tipping point will be reached where the retailer is structurally unprofitable.

The basic bull case is that the high short interest + management's willingness to repurchase lots of shares may create a short squeeze. Additionally, inventory liquidations from the huge # of stores they plan on closing early in calendar 2020 will generate sufficient liquidity for the company to survive until the new console cycle begins in Q4 calendar 2020.
Title: Re: GME - Game Stop Corp
Post by: RadMan24 on December 18, 2019, 01:18:11 PM
Were there spin-offs or big dividends?

The stock is down ~91% on a price basis from peak  over 5 years.

Recognizing that investment is forward looking, iíd say those calling for the companyís demise have been correct, no?

 I am confused why you say that the comparisons to defunct retaileres arenít working. If anything GME is exhibiting far greater fundamental deterioration than CC did with its -6% comps pre BK (I know people are deferring console purchases, but it illustrates GMEís fundamental cyclicality)

I actually have no opinion on how things shake out, just think itís dumb to lend to this company to get through another holiday season  to make 7-8%, particularly with the company on a mission to distribute its cash to equity holders

If I were long stock, Iíd still short the bonds.

Why is the comparison to a secularly challenged retailer that went bankrupt despite little financial debt not relevant?

Right, let's play your game. Where was everyone expecting Gamestop's demise when the stock was in its 40s, 30s? They were all over gamestop when it was in its 20s and high-teens in 2012 only to get burned like a crisp. Same folks, different people, are predicting the same at the end of a console cycle. Good luck!

Here are two GME short theses from 2013 and 2014, one with the stock at $33 and the other at $37.

https://www.valueinvestorsclub.com/idea/GAMESTOP_CORP/3191613313
https://www.valueinvestorsclub.com/idea/GAMESTOP_CORP/3808584834

Thanks for sharing. The short in 2013 was burned, as I mentioned. The one in 2014, you'd have to short and cover dividends until 2016 to breakeven on that trade. Even then, you didn't bank any real profits unless you held that short trade all the way until recently.

Let's also not forget the board/CEO attempted to diversify, incorrectly, into ATT reseller stores. They had put the cash to work to diversify but failed.

Today, the bull thesis is simple - consoles continue to have discs.

The bear case, going to zero, presumes that this isn't the case.


The odds are not in the shorts favor.

That's a straw man. I've read lots of bearish comments on GME, but don't recall anyone arguing that the next generation consoles would not have disc drives. Certainly not recently anyway, since it's all but confirmed that they both will, although it's rumored that Microsoft will release a lower price next gen device that lacks a disc drive.

The basic bear case is that digital is taking 5% plus share of the console game market each year. This is gradually decimating GME's new software and used and value software segments. The inherent operating leverage means that a tipping point will be reached where the retailer is structurally unprofitable.

The basic bull case is that the high short interest + management's willingness to repurchase lots of shares may create a short squeeze. Additionally, inventory liquidations from the huge # of stores they plan on closing early in calendar 2020 will generate sufficient liquidity for the company to survive until the new console cycle begins in Q4 calendar 2020.

For anyone wanting to give kids a console or for a second console in their house, great option.

Playstation is unknown if they follow suit.

https://www.digitaltrends.com/gaming/ps5-release-date-specs-price-news/

Many believe this industry is ultimately going to go Cloud streaming. The hiccup at the moment: loss of net neutrality and data caps in place at many internet service providers.

Physical media remains strong. But this implies digital downloads are a hybrid option between the switch from disc to cloud. Further, with PS5 going to SSD and bluray data discs at 100gb, owning just 10 games saves you 1TB of SSD storage. 1TB of SSD hard drive is not cheap relative to overall cost of console. Hence, the highest performing consoles will continue to have a hard disc with integrated SSD.

With cloud gaming at least 5 years away, if not longer, Gamestop has room to redfine itself, or to just throw cash back to shareholders.

What we know:

Next Gen consoles out 2020 - high-demand versions all disc based
Big PS4 games to hit market in 2020 (GT6 is also in the weeds, could be PS5 tho)
Uplift in used games/consoles possible, albeit moderate.

What we don't know
When cloud gaming will take off
How big of market all-digital consoles will cannibalize, or if they will simply be "add-on" sales (i.e. expanding overall market).
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on December 18, 2019, 01:46:19 PM
I continue to believe you are oversimplifying some of the issues at play here.

You said: "Further, with PS5 going to SSD and bluray data discs at 100gb, owning just 10 games saves you 1TB of SSD storage."

Media Reports say: "The Wired interview also confirms that the PS5 will use standard 100GB Blu-ray discs ó Sony had previously confirmed that the console will offer a disc drive ó but all games will have to be installed to the internal SSD this time around."

https://www.theverge.com/2019/10/8/20904351/sony-ps5-playstation-5-confirmed-haptic-feedback-features-release-date-2020 (https://www.theverge.com/2019/10/8/20904351/sony-ps5-playstation-5-confirmed-haptic-feedback-features-release-date-2020)

 
Title: Re: GME - Game Stop Corp
Post by: RadMan24 on December 18, 2019, 03:12:20 PM
I continue to believe you are oversimplifying some of the issues at play here.

You said: "Further, with PS5 going to SSD and bluray data discs at 100gb, owning just 10 games saves you 1TB of SSD storage."

Media Reports say: "The Wired interview also confirms that the PS5 will use standard 100GB Blu-ray discs ó Sony had previously confirmed that the console will offer a disc drive ó but all games will have to be installed to the internal SSD this time around."

https://www.theverge.com/2019/10/8/20904351/sony-ps5-playstation-5-confirmed-haptic-feedback-features-release-date-2020 (https://www.theverge.com/2019/10/8/20904351/sony-ps5-playstation-5-confirmed-haptic-feedback-features-release-date-2020)

Ah yes, the games have to be installed to disc drive, I forgot about that. Anyway, there was an update to the PS4 to allow for external hard drives. Looks like that won't be the case anymore for the PS5. Therefore, you're looking at 1.) one expensive console and 2.) valuable real estate on the early versions of consoles for game data and downloads.

Ultimately boils down to user preference if they want the resale/hard copy value of a disc, or convenience of downloading a game to hard drive. SSD upload speeds from disc or digital download will be the same.

I have no dog in this fight so I will leave it at this and let the chips fall as they may.







Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on January 13, 2020, 01:22:40 PM
Horrible results for the nine-week holiday period. Despite just lowering guidance in a big way with Q3 results, they they "now expect fiscal 2019 earnings to be below guidance"

https://gamestop.gcs-web.com/news-releases/news-release-details/gamestop-reports-2019-holiday-sales-results (https://gamestop.gcs-web.com/news-releases/news-release-details/gamestop-reports-2019-holiday-sales-results)
Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on January 13, 2020, 01:41:02 PM
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on January 13, 2020, 02:13:57 PM
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Those are all smart thoughts

I think (and this is very much just my opinion since management has not openly said this) the plan is to close a bunch of stores in Q1 of FY 2020 and use the liquidity from inventory liquidations to buttress the balance sheet until the start of the next console cycle. I don't think this is a particularly smart plan, but I suspect it is more-or-less how management is thinking about the situation.
Title: Re: GME - Game Stop Corp
Post by: given2invest on January 13, 2020, 02:54:33 PM
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Huh?  I don't read that *at all*.   First, it's a LOSS now so of course they won't hit the previous per share "profit" guidance.  If they have a net loss, no matter how many shares outstanding it's a per share net loss.  In fact, the less shares outstanding, the higher the per share net loss!

"The Company, while not updating earnings per share guidance at this time, now expects an adjusted net loss for the fiscal year, with adjusted earnings per diluted share impacted by the further deceleration in sales in December. "

It's very poorly worded but I wouldn't read into it as you have.  I don't have a position in this (never have) but continue to be fascinated by the amount of shares they bought back.
Title: Re: GME - Game Stop Corp
Post by: 5xEBITDA on January 13, 2020, 03:34:15 PM
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Huh?  I don't read that *at all*.   First, it's a LOSS now so of course they won't hit the previous per share "profit" guidance.  If they have a net loss, no matter how many shares outstanding it's a per share net loss.  In fact, the less shares outstanding, the higher the per share net loss!

"The Company, while not updating earnings per share guidance at this time, now expects an adjusted net loss for the fiscal year, with adjusted earnings per diluted share impacted by the further deceleration in sales in December. "

It's very poorly worded but I wouldn't read into it as you have.  I don't have a position in this (never have) but continue to be fascinated by the amount of shares they bought back.

Hm, you're actually most likely correct and it was me who read the release too quickly.
Title: Re: GME - Game Stop Corp
Post by: AlanS on January 30, 2020, 08:51:32 PM
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Those are all smart thoughts

I think (and this is very much just my opinion since management has not openly said this) the plan is to close a bunch of stores in Q1 of FY 2020 and use the liquidity from inventory liquidations to buttress the balance sheet until the start of the next console cycle. I don't think this is a particularly smart plan, but I suspect it is more-or-less how management is thinking about the situation.

Foreign Tuffett,

Just seeking your views, what would be a smart plan in this situation ?

Judging from a cash preservation point of view, they should close down unprofitable stores and improve margins. This would dramatically decrease net sales but improve cashflow and margins and ultimately survivability. About 90% of Gamestops 5,000+ outlets are cashflow positive , and I dont really see an issue if you close down the remaining non-profitable ones. Though based on the recent updates, this 90% would have dropped as video game sales suffer overall.

On the other hand, instead of conserving cash and paying down debt they did a huge buyback, as a vote of confidence that the shares are undervalued, confident of their ability to weather the year till the next console cycle.

Agreed that with a net loss and sharebuyback , the EPS would be terrible. And it is ironic in Burry's letter to management that he said

"Depending on the timing and quality of execution, such a repurchase would increase earnings per share dramatically - far more than any other possible action on a per share basis....shareholders do not have faith in current management, and have not been inspired by new leadership policies.... All of this creates the opportunity to enter 2020 with a dramatically reduced share count along with multi-fold greater impact per share for every single other achievement of management."
Title: Re: GME - Game Stop Corp
Post by: AlanS on January 30, 2020, 08:55:22 PM
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Those are all smart thoughts

I think (and this is very much just my opinion since management has not openly said this) the plan is to close a bunch of stores in Q1 of FY 2020 and use the liquidity from inventory liquidations to buttress the balance sheet until the start of the next console cycle. I don't think this is a particularly smart plan, but I suspect it is more-or-less how management is thinking about the situation.

Foreign Tuffett,

Just seeking your views, what would be a smart plan in this situation ?

Judging from a cash preservation point of view, they should close down unprofitable stores and improve margins. This would dramatically decrease net sales but improve cashflow and margins and ultimately survivability. About 90% of Gamestops 5,000+ outlets are cashflow positive , and I dont really see an issue if you close down the remaining non-profitable ones. Though based on the recent updates, this 90% would have dropped as video game sales suffer overall.

On the other hand, instead of conserving cash and paying down debt they did a huge buyback, as a vote of confidence that the shares are undervalued, confident of their ability to weather the year till the next console cycle.

Agreed that with a net loss and sharebuyback , the EPS would be terrible. And it is ironic in Burry's letter to management that he said

"Depending on the timing and quality of execution, such a repurchase would increase earnings per share dramatically - far more than any other possible action on a per share basis....shareholders do not have faith in current management, and have not been inspired by new leadership policies.... All of this creates the opportunity to enter 2020 with a dramatically reduced share count along with multi-fold greater impact per share for every single other achievement of management."

The impact per share part is correct, but its a negative impact per share
Title: Re: GME - Game Stop Corp
Post by: Foreign Tuffett on January 31, 2020, 07:10:31 AM
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Those are all smart thoughts

I think (and this is very much just my opinion since management has not openly said this) the plan is to close a bunch of stores in Q1 of FY 2020 and use the liquidity from inventory liquidations to buttress the balance sheet until the start of the next console cycle. I don't think this is a particularly smart plan, but I suspect it is more-or-less how management is thinking about the situation.

Foreign Tuffett,

Just seeking your views, what would be a smart plan in this situation ?

Judging from a cash preservation point of view, they should close down unprofitable stores and improve margins. This would dramatically decrease net sales but improve cashflow and margins and ultimately survivability. About 90% of Gamestops 5,000+ outlets are cashflow positive , and I dont really see an issue if you close down the remaining non-profitable ones. Though based on the recent updates, this 90% would have dropped as video game sales suffer overall.

On the other hand, instead of conserving cash and paying down debt they did a huge buyback, as a vote of confidence that the shares are undervalued, confident of their ability to weather the year till the next console cycle.

Agreed that with a net loss and sharebuyback , the EPS would be terrible. And it is ironic in Burry's letter to management that he said

"Depending on the timing and quality of execution, such a repurchase would increase earnings per share dramatically - far more than any other possible action on a per share basis....shareholders do not have faith in current management, and have not been inspired by new leadership policies.... All of this creates the opportunity to enter 2020 with a dramatically reduced share count along with multi-fold greater impact per share for every single other achievement of management."

The impact per share part is correct, but its a negative impact per share

Many four-wall profitable stores are probably just doing a little better than break even. Keep in mind that the stores themselves aren't expensive to operate: Many (most? all?) GME stores only have two full time employees, are very small, are often in B or C type strip malls, etc. Alot of the expenses are not on the store level.....regional managers, corporate executives, marketing, distribution, etc.

The management team is right to close stores. I would actually argue that they are a couple years late in doing so. Recall that this company did not, for all practical intents and purposes, have a management team in place for well over a year.

It was foolhardy to strain the balance sheet by buying back shares. GNC did the exact same thing several years ago just as its business results deteriorated, but its board fired the CEO before he bankrupted the company. Generally speaking a company shouldn't buy back stock if the terminal value of the business is seriously in doubt. 

The "smart plan" here, IMHO, would be to accept that the business is in secular decline and manage it accordingly. Rationalize the store fleet, pay down the debt, and focus on the basic "blocking and tackling" of operating the business.
Title: Re: GME - Game Stop Corp
Post by: AlanS on February 08, 2020, 06:48:43 AM
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Those are all smart thoughts

I think (and this is very much just my opinion since management has not openly said this) the plan is to close a bunch of stores in Q1 of FY 2020 and use the liquidity from inventory liquidations to buttress the balance sheet until the start of the next console cycle. I don't think this is a particularly smart plan, but I suspect it is more-or-less how management is thinking about the situation.

Foreign Tuffett,

Just seeking your views, what would be a smart plan in this situation ?

Judging from a cash preservation point of view, they should close down unprofitable stores and improve margins. This would dramatically decrease net sales but improve cashflow and margins and ultimately survivability. About 90% of Gamestops 5,000+ outlets are cashflow positive , and I dont really see an issue if you close down the remaining non-profitable ones. Though based on the recent updates, this 90% would have dropped as video game sales suffer overall.

On the other hand, instead of conserving cash and paying down debt they did a huge buyback, as a vote of confidence that the shares are undervalued, confident of their ability to weather the year till the next console cycle.

Agreed that with a net loss and sharebuyback , the EPS would be terrible. And it is ironic in Burry's letter to management that he said

"Depending on the timing and quality of execution, such a repurchase would increase earnings per share dramatically - far more than any other possible action on a per share basis....shareholders do not have faith in current management, and have not been inspired by new leadership policies.... All of this creates the opportunity to enter 2020 with a dramatically reduced share count along with multi-fold greater impact per share for every single other achievement of management."

The impact per share part is correct, but its a negative impact per share

Many four-wall profitable stores are probably just doing a little better than break even. Keep in mind that the stores themselves aren't expensive to operate: Many (most? all?) GME stores only have two full time employees, are very small, are often in B or C type strip malls, etc. Alot of the expenses are not on the store level.....regional managers, corporate executives, marketing, distribution, etc.

The management team is right to close stores. I would actually argue that they are a couple years late in doing so. Recall that this company did not, for all practical intents and purposes, have a management team in place for well over a year.

It was foolhardy to strain the balance sheet by buying back shares. GNC did the exact same thing several years ago just as its business results deteriorated, but its board fired the CEO before he bankrupted the company. Generally speaking a company shouldn't buy back stock if the terminal value of the business is seriously in doubt. 

The "smart plan" here, IMHO, would be to accept that the business is in secular decline and manage it accordingly. Rationalize the store fleet, pay down the debt, and focus on the basic "blocking and tackling" of operating the business.

Agreed on that front.

This can still be a low/negative growth with some terminal value if the management doesn't do something stupid. But I find the part on them refocusing Gamestop as a gathering place of sorts and an experiential gaming hub that I find concerning.
Title: Re: GME - Game Stop Corp
Post by: mikazo on February 08, 2020, 08:21:15 AM
GME at 98.8% shares short

https://seekingalpha.com/article/4322003-heavily-shorted-stocks-february-2020 (https://seekingalpha.com/article/4322003-heavily-shorted-stocks-february-2020)