Investors are clearly skeptical about Ryan Cohen’s ability to save GameStop (NYSE:GME). The stock has seen its share of pops, and a big one on news that Ryan Cohen would be stepping in as the company’s CEO. Yet since this announcement, GME stock has since dropped 23% over the last month, suggesting doubts about Cohen’s impact.
Investors are surprisingly cautious despite Ryan Cohen’s ties to GameStop, as he is already on the board and a major shareholder, taking no extra pay for becoming CEO. While he aims to transform the company into an e-commerce giant, the market remains doubtful. Let’s explore the reason it’s a stock to consider selling.
Cohen as GME’s CEO
Ryan Cohen’s GameStop journey took a turn when he was appointed CEO on September 28, and notably, he won’t take a salary for it. Cohen, former Chewy CEO and GameStop’s top individual shareholder via RC Ventures, holds around 12.10% of the company’s shares. He initially joined GameStop’s board in 2021 and later became chairman.
In June, Cohen became executive chairman after GameStop’s former CEO left. In his first memo as CEO titled “Survival,” he stressed frugality due to the company’s ongoing profitability struggles for five consecutive years. And, despite high operating expenses, retail efficiency hasn’t improved.
Known for founding Chewy then selling it for billions, Cohen faced challenges with his investment in Bed Bath & Beyond. After substantial involvement and a lawsuit, the company declared bankruptcy. The SEC is investigating his shares and sale.
GME Remains Weak
In 2022, GameStop began shifting away from e-commerce expansion and non-disc products. Now, GME relies on its 4,400 physical stores that mainly sell disc-based video games. However, declining demand is evident as consumers increasingly download games.
Cohen took note of the company’s issues in his email to employees in September. After acquiring his stake in 2021 and pushing for e-commerce, the strategy fell short for a year, leading both Cohen and GME to abandon the effort.
Recently, GameStop has been focused on cost-cutting to improve its finances, with CEO Cohen urging “extreme frugality”. However, this approach, including delaying bill payments to temporarily boost profits, may not prevent further declines in GME stock. The company has been trimming expenses for over a year, likely reaching its limit.
Moreover, GameStop can’t indefinitely delay bill payments. Also, its revenue is expected to decline significantly as demand for physical video game discs wanes. As a result, both its revenue and profits are likely to deteriorate, further weighing on GME stock.
Don’t Waste Your Time on GME
GameStop witnessed multiple short squeezes in the past two years, driving a massive price surge as bullish traders squeezed short sellers. Wall Street analysts view GME’s trading as disconnected from reality. It has been labeled as an irrational “meme stock”, akin to Bed, Bath & Beyond and AMC Entertainment.
The surge in GameStop’s stock prompts concerns about its future. Despite insider moves, GameStop’s challenge lies in diversifying beyond video games. Prudent investors should approach with caution, considering the long-term picture. While it raised funds during the meme stock frenzy, diversification progress is certainly limited.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
