Why I Still Think GameStop Is a Trap

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Sometimes there is no middle ground in the cutthroat world of business.

You are also a winner.

Or you are a loser.

A winner wins because they are doing something better than everyone else, usually over a long period of time. Through a mix of perseverance, creativity and excellence in execution, the winner builds on their success and expands their leadership.

There is a dose of luck in this too.

A loser, well, does exactly the opposite of this manual.

I come back with this simple message after another wild week of trading in GameStop stock (GME) – one dominated by one unverified social media account allegedly led by a guy known for wearing a red bandana, goofy t-shirts, and a tendency to flex his supposed dollars in a trading account.

GameStop stinks. You will 100% be a loser in the long run. Maybe 110%.

And you want to know, friends?

To reiterate this point, I’m not going to use any of the sophisticated analysis I learned while covering 55 retail companies as an independent equity analyst. I will do two things.

First, note that the company’s first-quarter sales fell 29% year over year. The company lost $32.3 million in the quarter, compared with a loss of $50.5 million a year earlier.

Business trends are getting worse!

Here are those numbers via the company’s ridiculously brief earnings release on Friday morning.

Secondly, I will create a link to the company website latest annual report hereand add these quick notes:

1. The company refuses to aggressively reduce a store base that totals 4,169 locations worldwide. Stores that sell similar products, such as Walmart (WMT) are aggressively investing in AI and same-day delivery services – practically making visiting competing stores a waste of time.

2. The company is losing a lot of money amid a persistent and structural trend of declining sales.

3. Margins are under pressure, and have been.

4. The company is overly reliant on consoles – 56.8% of sales came from hardware and accessories last year. But console sales face an increasingly bleak outlook as PCs and smartphones compete for market share.

5. The three objectives listed in the “business strategy” section – establishing retail excellence, achieving profitability and leveraging brand value – are not being executed consistently.

You GME fans might not want to admit it, but fundamentally analyzing a company is still important. This is how market mechanisms work. This is how true wealth is built.

The story continues

“You can never lose sight of the fundamentals,” said Interactive Brokers chief strategist Steve Sosnick in my “Opening bid” podcast (video above), adding that GameStop’s top and bottom lines will likely remain under pressure.

Keith “Roaring Kitty” Gill works hard on a Yahoo Finance GameStop chart on Friday, returning to streaming stocks on his YouTube channel. (Brian Sozzi)

That’s why these shares went from a high of $66 when “activist investor” turned CEO Ryan Cohen joined the board in January 2021 to a low of $9.95 in mid-April, before the last wave of Keith Gill antics. Shares closed at $28.22 on Friday.

Cohen did everything he could to reverse the company’s future trajectory. In the meantime, the company’s performance has been dismal. I keep everything I I wrote in my open letter to Cohen on June 9, 2023when the stock was trading at $23.

In fact, I’m going to take it a step further – I’m personally inviting Cohen to Yahoo Finance’s big fall Invest conference (2023 distinguished speaker list here) to debate me on the main stage about what the hell he’s doing with GameStop.

Ryan, the event will be on November 12th in New York City. My email is below.

You owe it to your legions of supporters to discuss what you are doing with public support and their money.

And don’t text me that Cohen saved the company with his recent $933.4 million cash grab through a stock offering and another Planned offering of 75 million released on Friday. All this does is ensure that the company can continue buying inventory for a few years while also getting out of a plethora of store leases that most of America doesn’t visit.

What does it look like to win in the consumer space? Check out these links:

Do you want to debate me on GameStop today?

I’m waving you into the Octagon at X – I’ll be here all day @BrianSozzi replying to your messages. Any inappropriate message and I will block your account. I want to hear your honest review of this company and why you love it.

In the meantime, enjoy reading GameStop’s 10-K.

Still can’t get enough of GameStop? Here’s what famous value investor Jonathan Boyar said about the company in “Opening bid“.

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Brian Sozzi is the executive editor of Yahoo Finance. He is also the host of “Opening bid“podcast. Follow Sozzi on Twitter/X @BrianSozzi and so on LinkedIn. Tips on business, mergers, activist situations or anything else? Email brian.sozzi@yahoofinance.com. Are you a CEO and want to participate in Yahoo Finance Live? Email Brian Sozzi.

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