Gamestop Is Now the Ryan Cohen Post-Game Show

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Gamestop (NYSE:GME) is no longer a short. It’s no longer a squeeze. GME stock has become a bet on Chewy (NYSE:CHWY) co-founder Ryan Cohen.

Retailers walk past a GameStop (GME) store in New York City, New York.
Source: Northfoto / Shutterstock.com

Cohen, who is still in his mid-30s, got into Gamestop last year, when the stock was trading in the teens and short-sellers were piling in. But instead of selling out when the stock rose to nearly $350/share in January, he took control of the video game retailer.

Cohen officially becomes chairman in June but he is already making moves. Most of the old board is gone. The old executives are exiting. In their place is a new team from Chewy and Amazon (NASDAQ:AMZN), along with a new strategy.

Gamestop has discovered the internet.

GME Stock: How Cohen Came In

Cohen sold Chewy to privately held PetSmart for $3.35 billion in 2017. Since then, it has become a home run for investors. PetSmart took it public in 2019 and it was a big winner during the novel coronavirus pandemic. It was worth $33 billion as trading opened April 26.

PetSmart separated its business from Chewy before taking it public, but still owns most of it. This after proposals from BC Partners, the private equity firm controlling PetSmart, were rejected. BC Partners is very fortunate.

It’s a great story but investors are right to ask, how much of it is Cohen’s? Chewy is now worth 10 times more than he sold out for. Cohen put a lot of his cash from Chewy into Apple (NASDAQ:AAPL), in the process becoming its largest individual shareholder. This gave him the capital, and nerve, to move on Gamestop.

The Gamestop Squeeze

What happened after Cohen moved in is now the stuff of legend. Speculators at WallstreetBets saw short bets on the stock and, often through the Robinhood trading app, they piled in. GME stock stock went as high as $347/share.

TV analyst Jim Cramer called in while recovering from back surgery, urging small traders to take their profits and get out.

Many, however, stayed in, including Keith Gill, whose screen name at WallStreetBets is “Roaring Kitty.”  The decision likely cost Gill millions of dollars. The stock now trades at less than half its high.

The Cohen Game Plan

Gamestop opened April 26 at $151/share. That’s a market cap of $11 billion for a retailer with 2020 sales of $5 billion and losses of $221 million, $3.31 per share.

The current Gamestop stores are small shops in strip malls that sell video game players, software and associated toys. This is a failing business.

Cohen sees opportunity. The rise of esports and cloud gaming mean the industry is growing, not declining. Gamestop could provide a physical presence that runs alongside that growth. The “chief growth officer” he has hired, Elliott Wilkie, did just that kind of integration at Amazon. While he was there, Amazon launched a second grocery store line called Amazon Fresh and is delivering fresh produce through Prime Pantry.

Cohen’s November letter to Gamestop’s board, available at the Securities and Exchange Commission web site, told it to close non-performing stores and to streamline or sell Australian and European operations.

Cohen’s move on Gamestop, turning its collapse into a short-squeeze, was a windfall for the old management. The exiting team, led by former CEO George Sherman, took vested GME stock valued at $290 million when they left. These are nice parting gifts. Sherman’s salary for 2020 was $7.2 million.

The Bottom Line on GME Stock

If you’re buying GME stock today, you’re buying Ryan Cohen. The short game is over, and it’s time to look at the long haul.

That long haul is speculative. The new strategy will take years to play out. From my viewpoint, looking at the industry, I give it a 50-50 chance of working. Those are better odds than the old management could have ever offered. But as an investor, I don’t like those odds.

At the time of publication, Dana Blankenhorn directly owned shares in AAPL and AMZN.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2021/04/gme-stock-gamestop-the-ryan-cohen-post-game-show/.

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