There’s ‘still a place in the video game ecosystem’ for GameStop: strategist
Joe Feldman, Senior Managing Director at Telsey Advisory Group, joins Yahoo Finance Live to discuss GameStop’s latest earnings report and outlook for the electronics retail company.
Video Transcript BRIAN SOZZI: GameStop shares are getting pounded right now after the Reddit target came up short last night with its fourth quarter profits.The company also hinted at a possible share sale, which would come at the expense of existing shareholders.Joe Feldman covers GameStop at Telsey Advisory Group, and he is here with us now.
Joe, good to speak with you again here.How disappointed are with you just with the optics of the overall quarter? Sure, they missed, but the earnings call, no Q&A session here, lack of disclosure overall.They made no reference of the stock price performance, except they buried in the middle of their annual report.
Have you talked to the team since the report, and how do you model the company’s earnings moving forward with its lack of disclosure?
JOE FELDMAN: Yeah, I mean, look, it’s been a challenge modeling, really, everybody.I mean, to be candid, most retailers this year have not been giving a lot of forward guidance, just given how confusing it’s been with COVID and the comparisons year over year.So I understand maybe being a little more opaque on that front.
However, the company didn’t even take questions on the conference call.They usually make themselves more available after the conference call to at least give a little more color as to what they’re thinking, what the trends might be.Didn’t get any of that from them.
So it’s been really quite frustrating.And I think for all those investors in the stock, they’ve probably been pretty upset just that there wasn’t a lot of new information to come out yesterday.
Certainly nothing transformational out of the company that people were hoping for.
JULIE HYMAN: And Joe, the company did see an increase in sales of certain metrics, right? And digital sales went up.Same store sales went up.
I mean, in as much as you can read the tea leaves here, like, what does GameStop look like in six months or a year? If it– OK, let’s say nothing changes.Let’s assume there’s no transformation because they haven’t told us there’s going to be.What does GameStop then look like?
Story continues JOE FELDMAN: I think GameStop is on the path that they were on before Ryan Cohen got involved and the RC ventures, his company.You know, they’ve been trying to do things to make the store more inviting, improve the merchandising within the store, make it more of an experiential customer experience, trying to get the better customer service, improve the technology, improve fulfillment options.That’s what they talked about that they’re going to do for 2021.That’s the plan.
And all along, we had the new console cycle that launched, right? The new Sony and Microsoft consoles that happened this year.That was going to be the big driver for this year.
That’s what we all were expecting.You’d see a return back to positive sales growth and that holiday season in 2021 would be better.And there’d be more availability of the product, and the demand is there for it.
So, you know, that all is true.It’s what’s happening.
And in that scenario, we thought things would look pretty decent for the stock, but then it just got crazy with this whole run up with the Reddit investor base that’s gotten into it and the short squeeze that happened.And so now the fundamentals are completely divorced of what the stock price is doing right now.So we still have an underperform rating on it and a $30 price target.
BRIAN SOZZI: So, Joe, do you think GameStop is, in fact, fixable? There continues to be, at least from the outside looking in, this view amongst traders that GameStop will become the next Chewy because of Ryan Cohen.But news flash here– GameStop still operates over 4,800 stores.It’s not a Chewy.Chewy just is an online retailer that sells really great products for adorable puppies and kittens there, and you constantly order that.There’s no need to go to GameStop.
JOE FELDMAN: Yeah.
Yeah, well, absolutely right.No, I understand what you’re saying.I still feel like there’s a place in the ecosystem, the video game ecosystem, for GameStop.
Maybe they don’t need as many stores, and fortunately, for GameStop and for all the landlords, actually, that their average lease term is around two to three years.So, really, within three years, GameStop could theoretically close every one of their stores at no extra cost, just by walking away from the leases.So I’m not overly concerned about that.
I think the issue is you just need a more inviting experience, and they need to be able to participate on the digital side a little bit better.But, you know, look, when you talk to the video manufacturers, like TakeTwo and EA, they need GameStop.GameStop still plays an important role in that ecosystem.
I understand there’s Best Buy and Walmart and Target and Costco and other places that– Amazon– you can buy this product.
But GameStop is still a leader in the space.They still have potential to be that hangout for that core consumer and make the stores more fun.And that’s really where their heads were at prior to this whole thing and trying to become the next Chewy’s, which, really, what makes Chewy’s work is, I get a bag of dog food once a month because I need to feed my dogs.That’s the recurring revenue stream that they get out of it.I don’t know that you can get that out of a GameStop situation.
BRIAN SOZZI: That’s a good point.In the conference call that they have, it wasn’t abbreviated like you mentioned.They said they were exploring options for that European business, and that European business is about 954 stores.Do you think that they might exit Europe entirely?
JOE FELDMAN: Yeah, that’s what we were thinking, that they might actually exit Europe.
I mean, it’s been a tough market for them.It’s not been great.And I know it’s been tough for everybody because of COVID, but– I mean, with the closures that have happened there.But really, you know, it’s not the most profitable business for them, and they could walk away from that.
You know, I think that there’s some hope that with the Ryan Cohen and the transition to digital that they’re talking about, I mean, in theory, the company has a very strong balance sheet.They could try to buy a game manufacturer.They could try to get more into esports side of video gaming.So there’s definitely things that they could do to become a more digital business.And maybe they will ultimately do that.
But it does feel like the business is going to be different.
And if you noticed also in the press release and on the conference call, they talked about improving fulfillment options in the US.It wasn’t necessarily a global discussion of the supply chain.It was much more about the US supply chain.So it does feel like they’re maybe going to try to skinny back down to that core US business, although Australia was probably the best market.So I don’t think they’re walking away from Australia anytime soon.
BRIAN SOZZI: And the saga rolls right along.Joe Feldman, senior managing director at Telsey Advisory Group, good to see you this morning.