GameStop (GME) no longer for sale, stock crashes over 20%

Shareholders of GameStop are in for some pain today as the stock crashes over 20% on the news of no buyout of the struggling video game retailer.

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GameStop shareholders were welcomed with a rude awakening this morning as the company has announced that they are no longer pursuing an acquisition. This comes just a few weeks after the stock jumped on rumors of a potential imminent sale of the struggling video game retailer.

Here's the full statement from GameStop Investor Relations:


GameStop Concludes Process to Pursue Sale of Company

GRAPEVINE, Texas, Jan. 29, 2019 (GLOBE NEWSWIRE) -- GameStop Corp. (NYSE: GME) today announced that its Board of Directors has concluded its previously announced efforts to pursue a sale of the company in conjunction with its broader review of strategic and financial alternatives.

In June 2018, GameStop’s Board, together with outside financial and legal advisors, commenced a review of a wide range of alternatives to enhance shareholder value. The Board undertook a comprehensive review process, including discussions with third parties regarding a potential sale of the company. GameStop’s 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.

As part of the Board’s review process, as previously announced, the company sold its Spring Mobile business. This transaction was completed on January 16, 2019 and generated approximately $735 million in immediate cash proceeds. The Board continues to evaluate the optimal use of these proceeds, which could include reducing the company’s outstanding debt, funding share repurchases, reinvesting in core video game and collectibles businesses to drive growth, or a combination of these options. 

Furthermore, the Board is continuing its search process to appoint a highly qualified, permanent CEO and is working with a leading executive search firm.


I have previously recommended buying GameStop's stock, and will likely be updating my rating for the stock when the next Game Trader analyst report comes out. The company has yet to find a replacement CEO, and still finds itself with a ton of secular headwinds. Competition from online and larger retailers combined with digital downloads of video games might be too much for GameStop to handle while pivoting to collectibles and exclusives. There are much larger and better run players in retail, and this board of directors has shown very little to inspire confidence in shareholders. While the stock appears cheap on a number of valuation metrics, it could very well be a value trap if revenues materially decline going forward. 

GameStop (GME) shares are down 26% at the time this article, and sit at multiyear lows. 


Full Disclosure:

At the time of this article, Asif A. Khan, his family members, and his company Virtue LLC had the following positions:

Long GameStop via GME call options

CEO

Asif Khan is the CEO and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.

From The Chatty
  • reply
    January 29, 2019 7:30 AM

    Asif Khan posted a new article, GameStop (GME) no longer for sale, stock crashes over 20%

    • reply
      January 29, 2019 7:38 AM

      I recently bought a PS4 RDR2 bundle from them for no other reason than they were the only retailer in town who had one that day. Probably troubling for them was that they were my third stop.

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      January 29, 2019 7:39 AM

      Yikes. I better spend my reward points soon!

    • reply
      January 29, 2019 7:40 AM

      You have to wonder - and this is far-fetched, too many stars have to align to make this work - if potential investors in GS are being scared off by publishers in an attempt to kill the used game market.

      I mean, GS is doing very little to help themselves here as we transition to digital distribution over retail. But still, the used-game thing remains a thorn in publishers' sides.

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        January 29, 2019 7:57 AM

        That is a very good point. The bread and butter of GME’s sales was used games, and it has been declining for years.

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          January 29, 2019 8:03 AM

          instead of a vast conspiracy maybe it's just digital sales rendering the used market obsolete

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            January 29, 2019 8:10 AM

            I'm sure it's the push of digital sales over used that's hurting GS, but do keep in mind how many publishers want to push us consumers towards a cloud-gaming model (which completely strips any issues of game ownership from us for sake of convenience).

            (Digital sales for PC and console last year were around $51B, vs $16B for retail https://www.gamesindustry.biz/articles/2018-12-17-gamesindustry-biz-presents-the-year-in-numbers-2018 )

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            January 29, 2019 8:23 AM

            I wasn't implying anything other than that.

            I have previously recommended buying GameStop's stock, and will likely be updating my rating for the stock when the next Game Trader analyst report comes out. The company has yet to find a replacement CEO, and still finds itself with a ton of secular headwinds. Competition from online and larger retailers combined with digital downloads of video games might be too much for GameStop to handle while pivoting to collectibles and exclusives. There are much larger and better run players in retail, and this board of directors has shown very little to inspire confidence in shareholders. While the stock appears cheap on a number of valuation metrics, it could very well be a value trap if revenues materially decline going forward.

        • reply
          January 29, 2019 8:07 AM

          They tried to switch over to a pop culture toy store but hot topic and similar retailers have that market lock up and the casuals will just get their Funkos at Target.

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          January 29, 2019 8:09 AM

          Yeah, they’ve been a chain of pawn shops for years, just one that didn’t sell guns and guitars

    • reply
      January 29, 2019 7:43 AM

      Holy crap. That sounds bad. Could they end up going bankrupt soon?

      • reply
        January 29, 2019 8:45 AM

        They're a game shop that sells primarily Funko Pops. They've got less than 5 years.

    • reply
      January 29, 2019 7:55 AM

      My daughter's husband recently interviewed with them for a manager position. I think I will forward this to him.

      • reply
        January 29, 2019 8:04 AM

        Manager positions are disposable. Sure you get paid a few cents more but they will burn you out faster than a regular employee.

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          January 29, 2019 8:15 AM

          It's not just a few cents more. From what he said, it was a bit more than $40k. Not a lot, I know, but better than min wage.
          I still told him it wasn't worth selling his soul to work there. Even before this news.

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            January 29, 2019 11:07 AM

            I was exaggerating to say the stress isn't worth the higher pay.

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      January 29, 2019 8:08 AM

      GameStop / EB Games are always a miserable store to be in. They feel like a cross between a pawn shop and a used car lot

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        January 29, 2019 8:20 AM

        They exemplify everything I hate about retail. Too many retailers are bent on pushing rewards, pre-orders, and credit shit they pressure staff to push with threats of being fired for under performing. It's a huge turnoff and honestly I lay a lot of the decline of retail on those practices. I hate the whole air of desperation that tends to hang over places like that.

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      January 29, 2019 8:16 AM

      GameStop will be going the way of Blockbuster very soon. There's only so much longer they can ride their out-dated business model. It's as simple as that.

      • reply
        January 29, 2019 8:22 AM

        IS there a business model for a place that sells physical video games?

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          January 29, 2019 8:26 AM

          Yes. As a small section in a much larger department store.

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            January 29, 2019 9:18 AM

            They should bring back the Funcoland IP, and open up boutique little sections in those Best Buy like stores like Magnolia or something.

            Also, they have some of the smallest footprint retail spaces, so I imagine rent expenditures are actually pretty reasonable for a company their size.

          • reply
            January 29, 2019 9:37 AM

            Yes, departments stores are also doing really well too.

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              January 29, 2019 9:40 AM

              I didn't say it's a permanent solution. But it would buy them a few years. Walmart isn't going away anytime soon.

        • reply
          January 29, 2019 8:59 AM

          In Japan.

          • reply
            January 29, 2019 4:08 PM

            Even then just barely, and there's a lot of inertia going on.

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          January 29, 2019 9:11 AM

          Whatever it is, it's not "fill your store with toys and shirts instead"

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          January 29, 2019 9:15 AM

          Yeah, I figured it out but I don't have the time or money to get it started and I for sure as hell don't want to help Gamestop profit from it.

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          January 29, 2019 11:03 AM

          Target still sells them

    • DM7
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      January 29, 2019 9:08 AM

      Where else will I get my cheap plastic anime girls? Or a giant infinity gauntlet? :(

    • reply
      January 29, 2019 9:30 AM

      The fascinating question is what happens now?

      They sold off their tech brands division and left the CEO spot vacant reportedly to make this sale happen, and now they're left with no buyer and no CEO but a pile of cash, modest debt, and a ludicrous yield. It's hard to imagine an orderly wind down as a public company, but does anyone really want to try to reinvent this company now? Yet at the same time, it's still quite profitable and likely will be for at least one more console generation, and there's no obvious pressure for a dividend cut. I assume we'll see some heavy buybacks in the next quarter, but that's not really a strategy.

    • reply
      January 29, 2019 9:34 AM

      Oh

    • reply
      January 29, 2019 10:58 AM

      But where will I buy shirts now

    • reply
      January 29, 2019 11:59 AM

      "GameStop was looking to sell their corporate brand and assets for $3B store credit or $7 cash"

      • reply
        January 29, 2019 12:16 PM

        Or restaurant tickets.

      • reply
        January 29, 2019 3:49 PM

        Can't LOL hard enough

      • reply
        January 29, 2019 4:05 PM

        Jesus.

      • reply
        January 29, 2019 4:29 PM

        This is the funniest video game related post in years

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        January 29, 2019 4:44 PM

        "* Note: Store Credit can only be used for pre-ordering stocks in the next IPO."

        • reply
          January 29, 2019 4:59 PM

          Or pre-ordering pre-owned copies of Anthem. They're going to have a lot of overstock.