Game Over for GameStop CEO, but what's next for the company?

By Kirsteen Mackay

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Chewy co-founder Ryan Cohen wants to transform GameStop into a tech giant - can $GME shares soar again?

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GameStop (NYSE:GME) stock is currently changing hands at $158 a share. That’s up 819% year-to-date but down 67% from its intraday peak of $483 in January. It seems the presence of Chewy (NYSE: CHWY) co-founder Ryan Cohen is bringing credibility and staying power to the infamous brand. So, what’s next for the video-game retailer?

What next for GameStop

GameStop stock chart – Photographer: Clay Banks | Source: Unsplash

GameStop CEO steps down

GameStop’s CEO George Sherman has resigned, after what we can easily describe as a tenuous few months. He’s only been in the position since April 2019, so we can safely assume these past two years have been a pretty wild ride for him. Especially given the pandemic took hold and GameStop unexpectedly gained global recognition.

Sherman will step down by July 31. But he needn’t be sad. As part of a separation agreement, he will keep over 1 million shares of restricted stock, currently valued around $184 million!

He’s actually the fifth person to hold the CEO position in the past three and a half years, so his two-year stint isn’t as short as it may seem.

Nevertheless, shareholders are celebrating the news as they see the change to be a positive one for the company.

GameStop GME share chart 1 year

GameStop share chart 1 year – $GME

Will Keith Gill’s optimism pay off?

Celebrity investor Keith Gill has raised his own profile and GME’s with it since he led the notorious bull run on GameStop stock in January. The Roaring Kitty, as he’s also known, shot to fame during the $GME surge as the subreddit r/WallStreetBets army took on Wall Street suits in a one-week battle involving billions of dollars and millions of memes.

Keith Gill immediately exercised call options in response to the news of the GameStop CEO resignation. This added 50,000 GME shares to his portfolio. In fact, his holding in GameStop is now thought to total over $30 million worth of shares.

Litigation in the works

Gill is clearly holding with conviction even though he’s been personally targeted by the SEC and a class action lawsuit. And now Massachusetts securities regulators have issued a subpoena seeking his testimony in relation to his promotion of GameStop shares.

In the meantime, 40 lawsuits are being heard in Miami regarding Robinhood restricting GME stock trading during January’s short squeeze. This began on Monday, but is likely to drag on for years.

Will Ryan Cohen bring shareholder riches?

Ryan Cohen, co-founder and former CEO of online pet supplies store Chewy Inc. (NYSE:CHWY), became a board member at GameStop in January. And through his investment firm, RC Ventures has taken a 12.9% stake in the company. His presence has been a big reason for the bullish sentiment among retail investors such as Keith Gill. That’s because he’s been loud and clear on his vision for the company.

His wants to transform GameStop into a leading technology and ecommerce company in gaming. In his new role as activist investor, he’s understood to be behind several big decisions. He began shaking things up last year, and in November suggested GME leadership should conduct a strategic review of the business. This was before the share price run in January.

In an open letter to employees, Cohen says:

GameStop’s leadership should immediately conduct a strategic review of the business and share a credible plan for seizing the tremendous opportunities in the rapidly-growing gaming sector.

GameStop needs to evolve into a technology company that delights gamers and delivers exceptional digital experiences – not remain a video game retailer that overprioritizes its brick-and-mortar footprint and stumbles around the online ecosystem.”

It seems his authority is making a difference. Over the past year, GameStop has been streamlining and implementing changes. This includes closing 693 physical stores as footfall in the malls is declining.

To significantly drive future profitability, GameStop will need to realise a massive online presence. Most video games can now be downloaded, so consumers are less interested in owning the physical product.

Activist Investor Ryan Cohen ex CEO Chewy turning GME around

Ryan Cohen founded Chewy – Photographer: Chewy | Source: Unsplash

Cohen is credited with turning around Chewy’s fortunes and beating Amazon (NASDAQ:AMZN) in the pet supplies category. It was sold to PetSmart for $3.3 billion in 2017. Investors are therefore pinning their hopes on his knowledge, drive and experience in transforming GameStop into an online gaming mammoth.

Trading in used games is a big reason gamers like the company. It also means they can purchase used games more cheaply. There’s speculation this is a service Cohen wants to bring online. Although how it would work has not been specified.

But it’s not just Cohen adding prominence to the leadership team. Two ex-Amazon employees have also come on board. Newly appointed Chief Technology Officer, Matt Francis, formerly held an engineering leadership role at Amazon Web Services. And new operating chief, Jenna Owens, spent several years at Amazon in a selection of senior roles.

The already high share price adds considerable pressure to the board. They’ll not only need to deliver a convincing turnaround but must ensure they emerge with a stronger company that has a long future ahead of it.

Will GME shares soar again?

Whether GameStop shares ever reach January’s dizzy valuation again really depends on two factors. The conviction of the Reddit army and more importantly, the future status of the company.

In GME’s Q4 results, sales and profit fell slightly lower than analysts had expected. And it reportedly has plans to extend its product offerings.

The Reddit army has found power in their combined force, but they’ve also found new targets to focus on. These include the lucrative world of cryptocurrency, which has Cardano, Dogecoin and BitClout making millionaires out of thin air. So, have they deserted GameStop for now, or will it forever hold a place in their hearts and wallets? With Keith Gill leading the charge, the conviction may hold. But with many investors now realising fortunes are lost more quickly than made, maintaining momentum may be harder.

12/ That’s all for now cuz I’m out of breath. FYI here’s a quick 4min video I put together to summarize the $GME bull case… it’s followed by some other deeper dive $GME videos: https://t.co/gV2i7QiyYB

— Roaring Kitty (@TheRoaringKitty) August 30, 2020

Keith Gill AKA The Roaring Kitty supports GME

Dogecoin hit an all-time high on Tuesday as its army of fans pooled their collective force to rally the stock via a frenzy of hashtags and memes.

The sheer volume and price moves these rallies can bring is phenomenal. But the tide can turn just as quickly and as we’ve seen with Dogecoin, rapidly plummet.

Global markets are still in shaky territory, with Covid-19 cases rising exponentially in India and Brazil. Plus, we should not underestimate the impact of cryptocurrency on the global financial markets. There’s a lot going on and the investing landscape is shifting in ways never seen before.

Whether GameStop can ever rise up among the tech giants remains to be seen. It’s an exciting share to own, but also highly volatile and therefore risky for the long-term. It’s more of day traders play thing at the moment, but perhaps Cohen’s presence will change that.

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Topics:
Computer and Electronics Retail
Industries:
Consumer Discretionary
Companies:
GameStop Corp

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.