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GameStop should abandon retail and become a holding company like Warren Buffett’s Berkshire Hathaway
It’s GameStop time (GME) to stick the fork in its struggling retail operations and embrace a second life as a holding company along the lines of Warren BuffettBerkshire Hathaway (BRK-A)(BRK-B).
GameStop is “a totally different company now,” says retail expert and investor Jeff Macke on Yahoo Finance’Opening bid‘podcast (video above; listen here).
Although he now refers to GameStop as a “dump truck of a company”, Macke’s sentiment was not always so cold. He said he owned his shares five years ago, when they were trading at $4 per share, with the view that his operations were undervalued.
He later sold the shares for $25 per share.
“I thought I was the genius of all time,” he said.
But Gamestop is full of fundamental problems lately, which has raised the question of whether the Ryan Cohen-led company is still a retailer.
Fiscal first-quarter results included a loss of $32.3 million on revenue of $882 million. Notably, GameStop lost $50.5 million on revenue of $1.2 billion last year.
The company continues to be hit by structural changes in the video game industry — from the shift to digital downloads to competition from streamers like Netflix (NFLX), for an aging console gaming base.
Cohen basically went into hiding, not appearing on the company’s notoriously short earnings calls. His plans for GameStop are not known to his loyal Reddit followers or major investors. Top executives have been leaving over the past two years.
GameStop also no longer has any sell-side research coverage on Wall Street, a byproduct of the stock’s insane volatility and Cohen’s relative secrecy.
Amid the latest batch of bad results, GameStop promoter Keith “Roaring Kitty” Gill returned to the scene on June 7 in a bizarre live stream; he once again praised the company, causing the shares to enjoy a temporary and fleeting rise.
This follows a social media post by Gill several weeks earlier — after a long absence — that many GameStop supporters viewed as optimistic.
Cohen used the frenzy to bolster GameStop’s coffers.
The company received $2.1 billion last week after selling an additional 75 million new shares. About three weeks earlier, it sold 45 million shares, netting $933 million.
Investment professionals like Macke are wondering what Cohen will do with all the money. Does he go out and buy companies like Berkshire Hathaway? Does he invest in Treasury bonds and individual stocks, like Buffett, for returns?
Either way, this sounds more like a CEO leading an asset management company or holding entity, rather than someone looking to create amazing store experiences for shoppers.
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In any case, Macke considers that investing money in physical stores is not ideal.
GameStop’s dead mall locations and outdated merchandise models are two of its numerous problems, he said.
Instead, he envisions a scenario in which GameStop abandons dead malls and tries to function as a holding company.
“Berkshire Hathaway was a failed textile company when Warren Buffett took over,” he said, adding that GameStop is more like “Berkshire Hathaway for suckers.”
But, with 3 to 4 billion dollars in cash, the challenge is finding the best way to put this into practice. “It won’t be at GameStop,” he adds. “It will be on other occasions.”
Speaking of famous holding companies, billionaire Warren Buffett’s son, Howard G. Buffett, joined the ‘Opening bid‘podcast to discuss his father’s decades of work at Berkshire Hathaway. Listen below.
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Grace Williams is a writer for Yahoo Finance.
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