GameStop Corp.’s recent decision to broaden its investment policy to include equities has sparked criticism from analyst firm Wedbush. The company announced its new investment policy in a filing alongside its third-quarter results, revealing that Chairman and CEO Ryan Cohen will be responsible for managing the investment portfolio.
Wedbush analyst Michael Pachter expressed his concern, calling the move “alarming” and “inane.” Pachter argues that investors already have access to various investment options and GameStop shouldn’t function as a mutual fund. Instead, if the company truly believes in the value of its own shares, Pachter suggests using excess cash for stock buybacks.
GameStop has yet to respond to requests for comment. As of the end of the third quarter, the gaming retailer held $1.210 billion in cash and cash equivalents.
Despite experiencing a recent meme-like rally, GameStop’s stock experienced a 2.8% drop on Thursday. In 2023, the stock has declined by 22.7%, while the S&P 500 index has gained 19.1%.
Reinforcing Shareholder Confidence
While expanding its investment policy may raise eyebrows among some analysts, GameStop is seeking to reinforce confidence in its stock through strategic decision-making. The company has positioned Ryan Cohen as its CEO, which has resulted in significant buzz on social media and among Wall Street circles.
Investors eagerly await GameStop’s next moves amidst ongoing shifts and challenges in the gaming and retail industries.
GameStop’s Revenue Misses Expectations, Faces Competition
GameStop’s fiscal third-quarter results fell below analysts’ revenue expectations, despite surpassing predictions on the bottom line. The company is still struggling with the shift from physical to digital games, affecting its performance in the software segment. Although GameStop had the potential for a strong revenue result with popular games like EA Sports FC 24, Marvel’s Spider-Man 2, and Super Mario Bros. Wonder, it significantly underperformed the broader market due to the ongoing transition to digital consumption.
Analyst John Oh from Third Bridge emphasized that GameStop continues to face tough competition from major players like Amazon.com Inc. The increasing market-share losses to mass merchants and e-commerce giants, including Amazon, pose a constant challenge for GameStop. This situation was expected, according to Oh.
Despite the company’s focus on cost-savings and profitability, Third Bridge suggests that there is still a long way to go. They point out that GameStop likely has twice as many stores as necessary, even after the closure of several stores. In its filing, GameStop stated that it operates “thousands of stores” along with its e-commerce platforms. However, store-related costs have decreased by $5.8 million in the current year due to store closures primarily in Europe.
