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Wall Street was skeptical about meme stock favorite GameStop a few years ago, but one prominent video game analyst now says he expects the company to be little more than a memory before 2030.
“GameStop has a potential runway of no more than five years,” Wedbush’s Michael Pachter wrote in a note to investors on Wednesday. “GameStop’s demise falls outside the 12-month window we use for our price targets, but we expect the company’s demise sometime later this decade.”
No response to Gamestop Fast companyAsked to comment on the explicit forecast, the company’s recent earnings do little to refute Butcher’s predictions. Despite having an extra week in the quarter and the video game industry seeing a moderate increase in game sales over the holiday period, revenue at GameStop continues to decline and headcount continues to shrink.
The company reported revenue of $1.79 billion in the fourth quarter, compared to $2.23 billion a year earlier with a staggering 19% decline in sales. The company also quietly announced in its 10-K filing with the Securities and Exchange Commission (SEC) that it was exiting its operations in Ireland, Switzerland and Australia.
The same regulatory filing revealed an unspecified number of job cuts. What we do know is that GameStop had about 8,000 full-time associates and between 13,000 and 18,000 hourly part-time associates worldwide at the end of last quarter. A year ago, it had 11,000 full-time workers and between 14,000 and 27,000 part-time workers.
“While we applaud management’s plans to further control costs, it is difficult (if not impossible) for the company to ‘stay the course’ to prosperity,” Butcher wrote. “We agree with management that the company’s efforts to contain costs are necessary, but spending less on staffing and rent costs is inconsistent with the company’s stated desire to maintain a ‘premium customer experience.’”
The only thing GameStop has is cash. The company has roughly $1.2 billion of cash holdings in its earnings — and Butcher says that could act as an umbrella slowing the company’s downfall. But if losses accelerate, it will not be enough.
“With its current cash balance, GameStop can sustain annual losses of $100 million for a decade or more,” he wrote. “However, if its revenue declines by $150-$200 million per year (which we believe is very likely given its lack of a clear strategy to replace lost game sales), it may have trouble cutting costs quickly enough to stop the growth of its losses.”
Even the WallStreetBets trading community on Reddit, which was responsible for the massive rise in GameStop’s stock price, appears to have turned away from the “quarantine,” the price of which has fallen 43% in the past year. One user called it “showing simple shit over and over again.” The few who still post there about investing in the company usually add “YOLO” as an excuse of sorts — and are largely ridiculed by others in the community.
This is a big change from just six months ago when Chewy founder Ryan Cohen took control of the company as CEO (filling a role that had been open since last June). Cohen has been looking to revive the brand since 2021, when he fired GameStop’s executive team and took over as chairman. He pushed the company to embrace e-commerce and launched a marketplace for NFTs, though neither effort had much success. He has been criticized by some investors (and analysts) for not announcing a major turnaround plan in more than two years.
One plan presented by the company is to shift its focus from new physical video game sales to collectible items (such as Funko Pops) and increase focus on used game sales. However, Butcher described this as “particularly amusing, since collectible sales require traffic to drive awareness, and previously owned products have to begin their useful lives as new products.”
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