Yesterday, Wednesday, September 8, 2021, video game, consumer electronics, and gaming merchandise retailer GameStop (ticker: GME) released its earnings report for the second quarter of the 2021 fiscal year (Q2 FY2021), and it was a disappointing one.
The company failed to beat or even match Wall Street estimates for its Q2 FY2021 performance, and this news has even affected its performance on the stock market. Immediately after the report’s release yesterday, GameStop’s shares fell 2% and were trading a further 7% down in the premarket session this morning.
The report shows that GameStop registered an adjusted loss per share of 76 cents, almost 10 cents higher than Wall Street estimates of 67 cents per share. However, the company beat expectations when it came to sales, as it earned a revenue of $1.18 billion in Q2 FY2021, which is higher than the $1.12 billion Wall Street expected the company to post in the quarter. That aside, investors are more interested in clues the company will provide about their transformation strategy.
During the earnings call yesterday, GameStop announced that by the time its Q2 FY2021 ended, it had cash and restricted cash in its vault totalling $1.78 billion. In the same quarter, GameStop entered into a lease in Reno, Nevada, for a fulfilment centre for its network to span both coasts of the U.S. There was no question and answer (QnA) session for analysts on yesterday’s earnings call, something that is becoming common with GameStop as the same happened with the last earnings calls for its quarterly results.
It should be noted that the videogame retailer went through a C-Suite overhaul after Ryan Cohen joined the company’s board in January 2021 and became its chairman six months later. Cohen, who is the co-founder of Chewy.com, an online retailer of pet food and other pet-related products, has been nicknamed “Papa Cohen” by enthusiasts of meme stocks. After joining GameStop, Cohen said he has a transformation strategy for GameStop, but he also added that he is not yet ready to reveal it.
“We are trying to do something that nobody in the retail space has ever done,” Papa Cohen said during GameStop’s annual meeting in June. Hence, we hope his transformation strategy doesn’t take long to materialize.
GameStop, which became popularly known as a meme stock and other stocks that surged after a Reddit-fuelled trading activity in January like theatre operator AMC Entertainment, is one of the companies whose stock has soared to record highs since the beginning of the year. The company’s stock has surged over 950% year to date, and it is currently trading at $198.80 a share.
This surge is why some analysts stopped covering after that January frenzy, and those that still do have issued either a “Sell” or “Hold” rating. One of these is Michael Pachter, a video game, digital media, social media, and electronics analyst with Wedbush Securities. Pachter has a “Sell” rating on GameStop, and he expects its share price to drop as low as $50. He is one of the many analysts who are not optimistic and enthusiastic about Cohen’s transformation strategy for GameStop.
“I am waiting for his brilliant [transformation] strategy, and it is not going to be brilliant,” Pachter said, as quoted by Yahoo Finance. Pachter believes that if Cohen’s strategy were brilliant, he would have already told analysts and investors alike soon as he joined the company months ago, or soon as he had conceptualized it.
Pachter added that Cohen is trying to revolutionize an industry that has already passed him by and made a bold conclusion that he (Cohen) is wrong on this one. As of December 17, 2020, Cohen’s RC Ventures holds a 12.9% stake in GameStop, making him the company’s biggest individual investor.
GameStop has massively gained from its efforts to focus on its social, PR, and individual investors. As Stephanie Wissink, an analyst at Jeffries Group, said, gamers are its strongest supporter, both as a consumer and investor. Unlike Pachter, Wissing has a “Hold” rating for GameStop and has set its price target to $190.
Over seven months after the GameStop saga, the company continues to be a favourite stock for retail traders, and it has a market capitalization of $14.28 billion.
In M&A news…
In July this year, Goldman Sachs (ticker: GS) said that it projects companies in the S&P 500 Index to spend over $324 billion in cash on Mergers & Acquisitions (M&A) this year alone. If this projection indeed comes to pass, companies will have spent 45% more money on M&A than they did last year. However, the financial institution also projected that this growth would slow down by 5% to $340 billion due to Biden Administration’s regulatory changes.
Since that projection, Zoom Video Communications (ticker: ZM) has announced an all-stock acquisition of Five 9 valued at $14.7 billion. Salesforce Inc. (ticker: CRM) closed the acquisition of Slack Technologies in a deal worth $27.7 billion. Now, another acquisition deal has been announced, and it is one where British gambling firm 888 Holdings PLC (LSE: 888) is set to buy William Hill’s non-U.S. assets in a deal valued at $3.03 billion.
The deal, which 888 announced this morning, will see the company buy the international assets of Caesars Entertainment Inc.’s William Hill business for £2.2 billion (about $3.03b). 888 said it would raise about 500 million pounds by issuing new shares to the public capital raise in the announcement. The acquisition of William Hill’s assets will save the company costs of at least 100 million pounds each year.
It should be noted that Caesars Entertainment was acquired William Hill early this year for £2.9 billion in a move intended to gain more expertise in the gambling industry. U.S. sports and entertainment firms dive into the risky sports betting business.
888 Holdings’ stock is down 3.88% today, and the company has a market capitalization of £1.4 billion (about $1.9b).