GameStop (GME) Stock Analysis

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.

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