GameStop (GME) Stock Analysis

Invesdea 💰 Investing Ideas

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Jul 7, 2022

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Overview

• GameStop products: GameStop’s e-commerce site which sells video games, consumer electronics, and gaming merchandise. GameStop is also developing NFT Wallet and Marketplace.
• GameStop revenue composition: 100% retail.
• GameStop is competing in the retail industry.

Advantages:

• GameStop is the king of “meme” stocks with a huge fan base that is determined to hold/buy the shares for the long term.

Growth

• Revenue Q/Q (1.28B -> 1.38B) +8%
• Revenue Y/Y (TTM) (5.35B -> 6.11B) +14%

Profitability

• Gross Margin 22%
• Operating Margin -11%
• Net Margin -11%
• Gross Profit Q/Q (330.1M -> 298.1M) -10%
• Gross Profit Y/Y (1.31B -> 1.32B) +1%
• Operating Expenses Q/Q (370.9M -> 451.8M) +22%
• Operating Expenses / Gross Profit Q/Q (451.8M / 298.1M) 152%
• Operating Expenses / Gross Profit Y/Y (1.8B / 1.32B) 137%

Valuation

• Market Cap: 8.86B
• P / S: 1
• P / Gross Profit: 7
• P / Operating Income: No Income
• P / E: Not Profitable

Risks

• Revenue only grew 8% in the latest ER. It could be even slower in future quarters.
• It is losing money and profitability is deteriorating. Operating expense increased 22% while gross profit decreased 10% in the last quarter.

Catalysts

• Announced 4-for-1 stock split.
• Launched GameStop Wallet that allows users to store cryptocurrencies.
• Planned to launch the NFT marketplace by the end of the second quarter.

The Bottom Line

BULL case:

• GameStop stock itself represents the power of individual investors. These investors will continue to hold and buy shares to show that Wall Street cannot always manipulate the market.
• GameStop could eventually become a technology company like OpenSea that allow users to trade game-related NFT or crypto assets.
• GameStop’s membership model could get users attached to the platform since it is the only e-commerce site that specializes in gaming.

BEAR case:

• Brick and mortar businesses would eventually die due to digitalization.
• Specialty retailers like GameStop cannot compete with large discounted retailers like Amazon due to the economy of scale.