Just How Regarded Are These Guys? The Business Case for GameStop
- GregisKitty
- Jan 27
- 8 min read
Updated: Feb 4
Business Performance:
Q3 ’24: Revenue $860M (-20.2% YoY) , GP: $257M (-8.7% YoY) with a margin of 29.9% , Net income: $17.4M, a margin of 2.0%.
Okay let’s go piece by piece. Revenue fell 20% year-over-year and GP is down – is this bad?
We need more information, what are the reasons growth slowed and revenue fell? Fortunately, GameStop made this clear in their 3 stated objectives (repasted below from Q3 '24 quarterly filing)
Establish Omnichannel Retail Excellence. We aim to be the leading destination for games and entertainment products through our stores and ecommerce platforms. To accomplish this, we are taking steps to ensure we are a fast and convenient solution for our customers. This includes increased product availability across all channels, faster fulfillment through ship from store offerings, and a further improved customer service experience.
Achieve Profitability. During fiscal 2023, we continued to optimize our cost structure to align with our current and anticipated future needs. We will continue to focus on cost containment, including closing underperforming stores, as we look to operate with increased efficiency.
Leverage Brand Equity to Support Growth: GameStop has many strengths and assets, including strong household brand recognition and a significant store network.
Our interpretation: at least part of the reason revenue fell is simply due to GameStop shutting down stores that weren’t profitable. This is smart - Ryan Cohen is cutting costs and improving margins by only keeping profitable stores in operation (aka the stores that are generating cash for GameStop). This is further evidenced by Net Income which is now profitable.
Do me a favor – take a look at GameStop performance before Ryan Cohen took over as CEO. He’s meticulously cutting down costs and it’s working.
Okay so income statement looks to be improving. Let’s continue to the balance sheet:
Cash: $4.6B, Total Current Assets (incl Cash): $5.6B, Total Assets: $6.2B
Debt: Current Debt: $10.9M, LT Debt: $9.6M, Total Liabilities: $1.4B (of this $1.1B is related to normal business operations)
Not going to spend much time here. GameStop has $4.6B of cash and virtually no debt. Common Stock outstanding as of December 4, 2024: 446,800,365. So cash per share is $10.30 (cash/shares) and assets per share is $13.88 (assets/shares). To me, that means the stock price should never fall below $10.30. This is an extremely healthy balance sheet, and GameStop has room to use some cash.
This brings me back to Ryan Cohen. On March 6th, 2022, he wrote a letter to the board of Bed Bath and Beyond. You can read it here. He essentially calls out that the strategy of Bed Bath and Beyond is leading to its collapse while the Company's named executive officers were collecting nearly $36M in compensation - an outsized sum for a retailer with a $1.6bn market cap.
He then proceeds to mention they should explore splitting and selling the asset known as buybuy Baby in a standalone sale. In fact - he even bolded and underlined this part in the letter:
This is where it gets interesting – the BBBY board didn’t respond at first. Why? An investor was proposing to help and suggesting exploring alternatives. Isn’t it the role of the board to explore all alternatives for a business that are of interest in the shareholders?
Us too Ryan, us too.
Notice in the reply above, Ryan Cohen says "directors should comprise of owners who bought shares with their own money. It's worth calling out that Ryan Cohen owns 36,847,842 shares of GameStop as of 1/29/2025. How many shares did he buy with his own money? 36,742,842 shares. He also takes no salary / no other compensation.
DISCLAIMER: For the next section, I have saved screen shots I'm referencing but will have to dig through thousand of pages of filings to find and provide the exact sources. I will do my best to link the exact dockets over next couple of weeks*
Fortunately, As it’s now 12/28/2024, we don’t need to speculate. Fast forward and Ryan Cohen is fighting a court case claiming that the BBBY board accelerated the business into bankruptcy through its corporate actions b/c they were focused on maximizing their own payouts, not those of shareholders.
How do we know this? A lot of the testimonials are public. We’ve read a bunch – you should too – but my conclusion is that Ryan Cohen is going to win. There are BLATANT emails showing what I believe to be fraud by the management and the other sides lawyer is pulling at straws.
MY TLDR; The BBBY board viewed Ryan Cohen as an activist investor. Rather than trying to maximize shareholder value, they sold a bunch of shares to dilute the stake Ryan Cohen had purchased and prevent him from joining the board as an activist investor. They even hired a fancy anti-activist lawyer/consultant for advice on how to keep him out of the business. There’s an email in discovery that shows the board responded to Ryan Cohen’s letter by thinking about what lawyers to hire and tactics to pursue to hold him off.
Additionally, it becomes clear that even before, the executive management of BBBY issued extreme share buy backs despite poor financial performance essentially using any cash to buy shares instead of optimizing business performance. This accelerated the business into bankruptcy. Not sure why the management team was doing that but most likely to support the stock price so they could cash out. Less shares mean the shares they own are worth more $ amount – perhaps that is why. Ironically, less shares means easier for an activist investor to join the board (easier to acquire 10% stake).
The end result: On April 23rd, 2023 Bed Bath and Beyond filed for Chapter 11 Bankruptcy.
Again, I encourage all of you to read some of the dockets yourself. There are a lot of good laughs. Good laughs with lawyers!? No way! Don’t believe me?
This is from Ryan Cohen’s deposition (A is Ryan Cohen, Q is the other team’s lawyer):
Interestingly, the opening talking points from Ryan Cohen also stand out:
Again, the asset buybuy Baby is mentioned showing Ryan Cohen still has a keen interest in it. This time some financials are mentioned: $1.5Bn in sales with double-digit margins and more than 50% online sales. Remember GameStop’s key number 1 objective mentioned above? “Establish Omnichannel & Retail Presence”.
Read the above talking points in full - Hmmmm wonder what that $5B will be used for. No idea.
Could Ryan Cohen even do it? Ummmm Daddy Meme King Lord Cohen can do whatever he wants. No really – he put in a policy that states as much:
On December 5, 2023, the Board of Directors of the Company (the "Board") approved a new investment policy (the “Investment Policy”). From the Q3 2023 filing:
On December 5, 2023, the Board of Directors approved the Investment Policy. The Board of Directors has delegated authority to manage the Company’s portfolio of securities investments to the Company’s Chairman of the Board of Directors and Chief Executive Officer, Ryan Cohen, together with such assistants and management committees he may engage. The Company’s investments will be made in accordance with the guidelines set forth in the Investment Policy. The Board may also approve non-conforming investments and/or, in consultation with the Chief Executive Officer, modify the Investment Policy from time to time.
Mr. Cohen directs the investment activity of the Company in public and private markets pursuant to authority granted by the Board of Directors. Depending on certain market conditions and various risk factors, Mr. Cohen, in his personal capacity or through affiliated investment vehicles, may at times invest in the same companies in which the Company invests. Such investments align the interests of the Company with the interests of related parties because it places the personal resources of Mr. Cohen at risk in substantially the same manner as the Company in connection with investment decisions made on behalf of the Company.
"Our portfolio of securities may be concentrated in one or a few holdings, which may result in a single holding significantly impacting the value of our investment portfolio."
TLDR; This investment policy allows Ryan Cohen to invest the $4.6B he has however he wants, including into a single asset, and including if he himself personally is investing or already hold invested interest.
This is interesting to me b/c Ryan Cohen already owns Bed Bath Beyond shares from before. In an acquisition, if a business has net operating losses, depending on the structure the acquiring business can take those NOLs and offset them with taxes.
I am not saying he’s doing this, but hypothetically, I think Ryan Cohen could acquire Buybuy Baby and acquire/use the NOLs through Bed Bath Beyond.
In the future, could let him invest/use the $4.6B and offset taxes with NOLs to maximize profit for investors.
How much is this worth? The NOLs alone were valued at $1.6 BILLION.
But is he doing that? I have no idea. Well, he’s 1000x smarter than us and can figure it out. As this X user points out, filings imply that somebody figured it out as they reveal a Stalking Horse.
Another docket from May 2023 shows Ryan Cohen as an interested party bidding for BBBY.
Fast forward to today, and filings as recent as Sept. 2024 continue to reveal Ryan Cohen is a creditor in the case - a creditor in a bankruptcy case is an individual or entity that is owed money by the debtor who has filed for bankruptcy, essentially meaning they have a legal claim to be rapid a debt from the debtor's assets during the bankruptcy proceeding.
Summary of Part 1: Ryan Cohen has GameStop in a great financial position ($4.6B cash no debt) and seems to be interested in strategic assets such as buybuy Baby from Bed Bath Beyond. Whether he is interested in those for himself, or GameStop I have no idea, but reminder he makes $0 Salary / Compensation from GameStop and the shares he owns were purchased by him. Said otherwise, he does have incentive to bring maximum value to GameStop.
UPDATE! February 5th, 2025: Beyond, Inc. to Reunite Bed Bath & Beyond with Buy Buy Baby.
Beyond Inc. has entered an asset purchase agreement to acquire the global rights to the BuyBuy Baby brand for $5 million, the company said Monday. The move reunites the brand with its former corporate parent, Bed Bath & Beyond.
Read Ryan Cohen's talking points above - he claims buybuy Baby does $1.5Bn in sales with double-digit margins and more than 50% online sales.
We agree Kais and invite you to join our community. MOASS is always tomorrow as it has been for 84 years, but it certainly feels closer each day. We think Ryan Cohen is cooking right now and here's how we imagine he looks:
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