Another GME quarter with not a lot of new information on the investment story. 3Q saw a revenue beat with an acceleration of 350bps and a steady 2yr trend. That's 29% revenue growth despite a 9% decline in the store base and limited supply of consoles that can ultimately be a big traffic driver to stores. Margins were weak, though with the revenue upside gross profit dollars were actually in line with our model. The company is launching new brands in hardware, which is clearly driving share gains, but also hurting gross margins from mix. Freight and higher credit card fees from elevated online penetration were also a GM % drag. The part that deviated from our model was SG&A. The company is clearly ramping hiring and investments around new initiatives, per the CEO on the call “With respect to hiring, we kept adding talent across the organization, including specialists with experience in e-commerce, UI, UX, blockchain, operations and supply chain. Over the course of 2021, we have made more than 200 senior hires from some of the top technology companies. We also recently added a new office in Seattle and have identified an office location in Boston, positioning us within 2 tech hubs with strong local talent markets. Having footprints in these cities will help us attract and retain tech-focused teams with expertise in e-commerce and other areas.” The company has poached a lot of talent from Amazon, Chewy, Wayfair, and others building the bench to transform the business into a consumer ecosystem powerhouse around all things gaming related. All in, the investments drove a $43mm sequential increase in SG&A. Inventories were up 33%, GME appears is expecting a strong holiday as it relates to sales.
Once again the conference call was short. 9 min of prepared remarks, with very little detail provided on future initiatives. The next relevant catalyst for this stock is the unveiling of its crypto gaming offering. The company has been tight lipped on this and will likely continue to be so until it’s ready to launch. It doesn’t seem imminent, but we’d expect to see it taking shape within the next 6 months. The space is hot. Cryptogaming token prices have been very strong since the Facebook “Meta” name change, which is getting people excited about the opportunity in metaverse gaming offerings, which GME is building a business for. What that business will look like exactly we don’t know yet, but it appears it will be getting a slice of the NFT marketplace around blockchain games.
With Macro Quad1, accelerating revenue trends, and catalysts around unveiling of new offerings of the business transformation we remain long GME.
