Much like pressing the button on your Sega Genesis, GME has hit the reset button. A whole new management team is coming in, GME has a completely transformed balance sheet, and a whole new opportunity sits before it to craft a new strategy for tackling the adventure that is curating and selling gaming equipment and content to the billions of global gamers. 1Q was a good quarter relative to expectations and in terms of rate of change. EPS was at a 45 cent loss vs consensus at 82 cent loss. Revenue accelerated to +25% from -3% last Q. May sales have accelerated slightly to +27%. In 1Q sales were a bit below our model, mainly in the US but we’re still not seeing consoles in stock. Sales growth will be somewhat muted until GME can get its hands on plentiful new consoles. International markets with heavy lockdowns did better than expected. All in the company delivered just under a 1mm loss in adjusted EBITDA which was ahead of our number due to better than expected gross margins.
The company announced its new CEO and CFO. The new CEO is Matt Furlong who comes with nearly 9 years of experience at Amazon where he recently led the Australia business, as well as having prior work experience at Proctor and Gamble. The new CFO also comes from Amazon where he worked 17 years and most recently as the VP/CFO of North America Consumer. There may be some disappointment from the Reddit crowd to not have Ryan Cohen in the CEO seat, but ultimately for the long term success of GME, it doesn’t matter. The company is attracting top talent, and Cohen can steer the strategic direction from the chairman of the board seat. At the same time GameStop is setting up another at the market share offering of up to 5mm shares. The company has about $650mm in net cash, with potentially another $1.5bn in cash coming from this next equity offering. The possibilities for strategic moves are endless.
The focus for GME is all around the business transformation. The first big step was changing the leadership. The other steps so far have been small. Further store de-densification. A new 700k SQFT fulfillment in York PA to be running by 4Q. New product offerings like PC gaming computers, monitors, game tables and gaming TVs. There is so much more GME can and will do. We heard recently about the company recruiting to build an NFT business. That doesn’t mean selling 1-off art or collectibles. Rather it could be developing an entire cryptogaming ecosystem. The market opportunity here likely resembles something like in-game purchases, which is about 75% of all sales in global gaming today. GME will likely be helping to build the market here. Still that might be a small slice of what the new GME will look like.
We went long GME in Dec at $14, and continue to be long the name. We’re planning a Black Book for early 3Q to give the full deep dive on our take as to what the future GME might look like and what opportunities lie ahead. Stay tuned.
