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Here Could Be Ryan Cohen’s Plan To Make GameStop Worth $400 A Share In +5 Years If He Takes Control Or Injects Entrepreneurial Spirit.

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Derek Capo's Blog
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  • I have followed GameStop for over 15 years and have witnessed GameStop's "partners" eating them alive. Ever since Paul Raines died, the executive team churn has caused so much destruction.
  • Current plan will not save the company or allow it to thrive; short interest high with reason. Financial engineering has not worked as it has taken them from $50 to$6.
  • The company needs an entrepreneurial mindset adding new lines of business such as a Subscription model, points/currency, game marketplace, e-sports league, gaming studio, twitch like service, own console, etc.
  • I will show a model of how new lines of business can make GameStop worth $400 a share over 5 years.
  • GameStop needs to radically shift, like Appledid in 2001 from computers to consumer, from a retailer to an ecosystem of all things gaming.

GameStop used to be an aggressive and bold company in the 1990s and early 2000s.

GameStop was a juggernaut in the early 2000s after its merger of Electronics Boutique and aggressive consolidation/expansion in the retail space. GameStop had so much market-share they could control release dates for gaming companies and make or break a launch because the company had so much power and distribution. They would even have two stores within the same mall, and never cared about "de-densification" because they could not satisfy the demand. Nevertheless, over 15 years, GameStop made many excellent and horrendous decisions; I will mention a few below for reference.

  • They were right in having a competing product to stream PC and console games online but closed it due to poor management because Steam thrived, and they did not.
  • They were right to have a gaming studio for indie games but sold it. Again, management kept on financial engineering to the point of no risks or innovation.
  • They were wrong in not catching the Twitch/Streaming trend even though they knew it was something they should have built. They did not listen to their customers enough or not bold enough to copy or at least partner/invest with Twitch.
  • The company spent way too much money buying mobile stores; in fact, A T and T dumped so many stores on them for a "low price" and then a year or so later changed a significant revenue stream, which eventually led to a massive write-down. Thanks AT and T.
  • They are right about Collectibles and should continue to grow that business and figure out a way to get into digital collectibles as that is booming.
  • Wrong in buying back stock and other financial engineering shenanigans. The recent sale-leaseback is BAD long-term for shareholders because, in about 5 to 6 years, the lease costs will end up being more expensive for shareholders. This is also management saying, "we may not survive long enough anyway, so let's just sell today" if there is a future. Remember, these management teams have not lasted longer than a few years. They get paid millions regardless, even if YOU LOSE MONEY.

Nevertheless, we need to understand better how this started falling apart because tech alone is not the reason for the demise of GameStop; it was management or the loss of entrepreneurship.

Gaming studios and console companies have a love/hate relationship with GameStop.

Gaming studios and console companies genuinely hated GameStop in the early 2000s. They would make or break their year if the GME management team/sales associates pushed a competing game during the same season. However, they also loved GameStop because they would educate and sell to consumers better than any other electronics retailer. Nevertheless, I remember how painful it was to own stocks in game studio companies in the 2003 to 2009 period because they would spend $50mm to develop a game, and there would always be delays (unless it was a Sports game, which was marginal improvement every year). Every delay would cause the stocks to crash 30% or more; some would go bankrupt because they relied so much on a game release. The studios had no steady cash flow and no way to get gamers to keep playing the game once they "beat it." The gaming companies knew that the power would shift; they could continue to sell to the gamer for years and bypass the retailer. Sure, they "needed retailers" but knew tech and internet penetration would eradicate retailers over time.

The beginning of the end for GameStop was in late 2006 when the online stores for PlayStation and Xbox were launched, although it took about five or so years to impact the company. At first, the online platform and selection of games were weak, and downloading a game took days, given the slow internet speeds; nevertheless, it clearly showed how games were going to be sold and distributed. When gaming consoles started packaging digital games for free, it loudly told the consumer and GameStop you can buy online and don't need to ever go to a store. Yet, GameStop just smiled and collected its 10% to 20% margin. GameStop was too addicted to the cash flow and focused on other ventures to "leverage" the traffic at their stores. Most of their new initiatives and services were so bad that you would walk into a store and be able to do ten different things that were NOT related to gaming. It seemed smart at the time, but it was sad too. Who wants to get a new phone line, pay their bills, or get their phone fixed at a GameStop store? Not many.

When studios realized that the power shifted, studios increased budgets of games from small to blockbuster sized budgets, no pun intended. The studios' business model was stuck in the 1980s and could no longer thrive selling a game one time for $60 when it costs them +$200 million or more to make; they needed a steady stream of cash flow. This cash flow can now come from many ways, such as $5 to pay for upgrades to weapons/items/etc., networking features, and "extension packs" to add to the story of the game. For example, Final Fantasy 7 Remake took years to make and +$200 million and only released PART 1 of the three games. The total cost to a gamer will be $80 to $150 when all of the parts are released, and who knows if they decide to open it up to other online features, which gets the consumer to play and spend more. This is a shift that GameStop is no longer able to capture as well as before. Sure, they help them get the customer to buy the first game at $60, but they lose the rest of the sales from $60 to $150. This is billions of revenue, which has shifted to Sony, Microsoft, and gaming companies.

Also, a gaming studio company can release a game, and if the sales are not good, they can spend a few months to fix up the things people do not like about the game and re-launch an updated version, then have people review it and re-rate the game. Meaning before when they spent $50mm and released the game, and it sucked, they would have to make another game to cover the loss. Today, they can release the game, fix it up and maybe spend 5% more to improve it, send an instant update for free, and gamers would be able to react quickly to the updates, which would help the shelf-life of the game.

The truth is, GameStop could close tomorrow and the revenues to the gaming companies would maybe impact their business for one year. Customers and gaming companies would move to other retailers in the short-term but most likely quickly push more online sales. They would love it if GameStop died since the console companies AND gaming companies DO NOT want people buying used games because the gaming companies do not care about the low-income consumer. Do you think NIKE cares that it sells $200 shoes to broke kids? Nope, they LOVED and thrived FROM IT.

GameStop does very well in serving the lower-income market. However, sometimes it can be perceived as predatory when you buy a game for $60, GameStop buys it back for $20 and sells it to someone else for $55. Which is still better than $0 if you bought it online, so who is fighting for the consumer Sony and studios or GameStop? It has been GameStop. No question. I realize that some gamers do not care about the residual value of their game, at least in specific demographics. Still, it makes no sense ever to buy a game digitally because even old games from the 1990s still have value.

The announcement of the PS5 price for the two different consoles with disc and without a disk is very telling. Are consumers willing to spend $100 more to have discs and keep control of their game assets, or do people go 100% digital to "save" 100? This digital-only console is a sucker's deal because you are not saving $100. You are wasting potentially hundreds if not thousands of dollars over a 5 to 7 year period if you buy and sell/trade your games into GameStop, Amazon, or eBay. GameStop should push the disc version of the console by offering to give $50 in used games with the purchase of that console vs. the digital-only version. If not, then GameStop's cash cow will be expediting its death.

GameStop is stuck in the same model from 2006.

The bean counters at GameStop are addicted to the old-school model of trade-ins. For example, you can buy on GameStop.com a USED "Spider-man Game of the Year Edition" for $35, and if trade it in, GameStop gives you store credit of $12 to $14, or you could sell it on Amazon/eBay for $28. GameStop makes a whopping 200% margin, and it is something that back in the early 2000's they could have done it at scale with ease. Now? A lot of games are sold digitally. Consumers like convenience and value, and GameStop is no longer providing as much as before. Sony, Microsoft, EA, Activision thank GameStop to help gaming achieve mainstream but have led to its potential death and do not care if it survives or not. There are so many options and platforms now that GameStop has become genuinely irrelevant.

Gamers and regular customers want flexibility. I bet they are open to a profitable subscription model that is disc and multi-platform because gamers like to play games on other consoles. Customers go back to games they may have played six months ago because of updates, new extension pack releases, try a different strategy, or just complete boredom. Which brings me to why I never understood the case of Blockbuster vs. GameStop. Although digital distribution is happening, the culture and stickiness to games are vastly different. No one wants to own 1000 DVD's, and not many people watch the same movie 50 times, but a gamer can play a game for hundreds of hours. A DVD is $20, and you watch maybe 5 to 10 times MAX (unless you let your family borrow it), whereas a game costs $60, and you play for 30 hours minimum to 100's of hours. The value of a DVD can probably drop to $10 to $5, but a video game that can be valued can drop from $60 to $20 and be there for years if it is an excellent game.

Millennials and the next generation have been slowly adopting more digital purchases and have some of the following habits below that are not going to change.

  • Games will never trade in collector games unless value skyrockets. You will only make money on this transaction 1 time but will never be digital so that is good news for GME.
  • We will buy digital games if your customer service sucks, the shopping experience is horrible, or we do not care to have the physical disc because we plan to play this game for a long time and have no desire to trade the game.
  • We will not bother buying digital upgrades via your website or store unless we get an excellent buyback on an older game we trade-in.
  • Sometimes we would rather sell on Amazon or eBay than your store because we can get an extra $10 or more (Spider-man is a perfect example).
  • You have no differentiation from Amazon or the consoles directly except when talking to your sales associates who are very knowledgeable and should be the people running your online store chats vs. people from India or the Philippines who have no clue what they are doing. You are losing potential sales, not having your store staff running online chats.
  • The company did a terrible job during the epidemic, and it showed when you are bragging about an 800% increase in e-commerce sales when the gaming companies stock prices have returned +1000%. You are bragging for the wrong reasons; you keep helping your competitors destroy you.

GameStop needs to do whatever it takes to grow and take back market share and dollars away from current retailers but also the gaming studios and console companies.

Here is my bold plan of what I would do if I were CEO of GameStop to help fight back and win.

The following ideas are part of the list of things I would do that are more on the entrepreneurial side, as I do believe there are a lot of operational initiatives that need to be done as well.

Phase 1 – Initiatives that can use current infrastructure at low costs to launch.

  1. Subscription model like Netflix.
  2. Make Reward points a global currency (should be crypto compatible too)
  3. Marketplace – allow users to sell their used games or collectibles on the website.

Phase 2 – with the launch, growth, and cash flow from phase 1 company can be more aggressive.

  1. Launch social streaming products like Twitch; poach from all the top platforms to GameStop's.
  2. Launch e-sports league
  3. Buy gaming studios, indie, and large ones
  4. Buy Steam to go after the PC market.
  5. Launch GameStop console.

Details of Phase 1

  1. Subscription model like Netflix.

Offer a Netflix style model where there is only one plan for $30 a month that allows the customer to have 1 to 6 games rented from ANY platform. Gamefly, which already does this, charges $15 a month for one game and $25 a month for two games at a time. Yet complaints are that it takes days to receive, limited selections or not send top-rated games. GameStop can beat this offer and destroy GameFly, which is owned by…….you will not believe this…. Electronic Arts, talk about a great partner!

The competition is increasing fast for cloud subscriptions, and GameStop needs to counter the move by offering a multi-platform program that makes all the other services unattractive

The total population of gamers is 2.4 billion; consider that it is a total addressable market or TAM.

      1. PlayStation Now has 2.5 million subscribers
      2. Nintendo Switch Online has over 20 million subscribers.
      3. It would not be farfetched for GameStop over ten years to have over 100 million subscribers.

Here is how the math can work out:

GameStop can charge $30 a month to allow 1 to 6 games rented per month. For example, $30 a month gets customer 600 GameStop reward points per month.

      1. New releases and pre-orders will require 1000 to 1200 points or more (they may need to buy points; hint to my other bold idea)
      2. Tier 1 (games three months or less) will be 600 points per game per month
      3. Tier 2 (Games 6-12 months old) will be 300 to 400 points per game per month
      4. Tier 3 (games 12-24 months old) will be 100 to 200 points per game per month
      5. Customers get back points for every game returned, but the points vary depending on the demand, so if a game was 400 points when you got it and then when you return it is worth 200 points, you will get 200 points back to use on another game. For example, let's say someone signs up and gets 600 points; they then get two Tier 2 games for 300 points each. If the gamer keeps it three months and the game is still worth 300 points each, the gamer will be charged the 600 points a month to have those two games in his possession. If the game drops from 300 points to 200 points Month 4, the gamer will have a net credit of 200 points and can choose to either keep the points in the account or get another game.
      6. GameStop should not care if the gamer has six games rented worth 100 points because it is making money on old inventory. Max rental is six games unless it becomes profitable to allow more.
      7. Some gamers will only like to have one good quality game; some gamers have no issue having six lower-tier games; let them choose and accumulate points over time as some may not do anything for months and get 600 points a month to save for an upcoming game or to gift to a friend or to buy out a game they like.
      8. If the customer wants to keep the game "forever," they can use a buyout option that has a certain number of "points" already set for them, and they can pay the additional fee to own it and allow them to rent another game once that game has been bought out.
      9. Remember, parents and family will gift these subscriptions or points to kids for Christmas and will be addicted to getting points from friends, family, etc.
      10. A lot has to be done to get this right but remember; the goal is to take market share from other retailers AND the online PS and XBOX stores. Market share and growth is critical as that will help the business and the stock; it worked wonders for Tesla and many other tech companies.

Yes, the PS and XBOX online stores will compete aggressively on price and offer, but there is a MAJOR competitive advantage that GameStop has. You can allow people to rent games from ANY PLATFORM. Meaning, if I want to have one game on Switch, one game on PS4, and one game on XBOX, I can do that; the platforms can never do this! This opens up the opportunity for gamers to own more than one platform and not be so loyal to a platform as they spend so much time and money on just one platform. This allows them to diversify and even share their perks with friends and family, like how Netflix will enable people to share their subscription with five other people.

2. Make GameStop Reward points like airline miles and allow people to buy, sell, trade, gift on your platform for a 5% fee. Also, make it a global stable coin cryptocurrency.

The GameStop rewards system is severely underutilized and is not considering the value it brings to the international gaming industry. Gaming is genuinely global, and it is time for the company to consider the possibility of thinking like a financial institution with its points system. GameStop should be the one-stop place for anything and everything gaming related, and the points system is a significant pillar to its future success. This means buying, selling, trading, etc. One currency for ALL gaming related needs should be the focus here.

Here are a few things to consider.

  1. In the 2019 Global Games Market Report, there are 2.5 billion gamers and spend more than $150 billion on games, a 9.6% increase from 2018. On average financial transaction fees are close to 3%, which is around $4.5 billion in payments that went to financial institutions such as Visa, Mastercard, and all the banks connected to it. GameStop can take market share of this via a global cryptocurrency that is 100% focused on gaming.
  2. Once you have tens of millions of monthly subscribers, you will have many people that will start to use points for many other things. Customers will be able to rent games, buy games, upgrade. Still, you can sell them digital upgrades, collectibles, and so many other things that they will be addicted to collecting points just like people are addicted to collecting airline miles. You can even allow people to exchange the points for other NON-gaming rewards like airline miles, gift cards, or even cash by visiting a store and charging 5% or more on these transactions. When you have your new credit card, offer the points on every purchase made will help them accumulate points and do whatever they want with it. Do you know what is the best asset of an airline when they went bankrupt? It was the miles, not the planes.

Today GameStop has the retail distribution, and over time many other stores and online platforms will accept it because they know a respected institution backs it. Also, you can create your economy of the currency, and bypass credit card transaction fees from banks, send money to global partners instantly, and grow your user base faster than ever before. I am sure many people would take GameStop point than USD or EUR has given the international exchange fees, lack of currency fluctuation, etc.

3. Launch GameStop Marketplace

For years you have allowed Amazon, eBay, and many other websites to sell gaming products and services because you wanted to protect your business model. Still, now that there is so much focus by your "partners" for digital, you will now need to tap on ALL of the disc inventory of the world, not just yours. A marketplace allows buyers and sellers to sell their games, collectibles, anything gaming related where you collect a flat fee for connecting buyers and sellers. The users, when they sell their goods, will receive GameStop points of which they can use to redeem to buy games, collectibles, or digital goods or cash out by going to a store or can send them cryptocurrency of which you charge a fee. This model allows you to tap into the global inventory of the world without ever having to store or use capital to own the goods. This segment will be a high margin business as you continue to grow the ecosystem from the 60 million you have now. It would take a few months and a few million dollars to launch this, or you can acquire an existing platform. There are a few out there that could be obtained for a low price.

Phase 2 details

1. GameStop Stream

You missed the streaming trend, but the good news is that it is not too late. With the success of the initiatives of phase 1, you will need to hire a team or buy a platform that already exists with a strong user base to launch your version of streamers. The value of the streaming is that it is constant contact with consumers, and you can collect fees from all of the tips and subscriptions that the streamers sell and, if they help push your subscription model, can be your best salespeople. This product gets you thousands of ambassadors that are online 24/7.

2. Launch of e-sports league or GEA – GameStop E-sports Association

The launch of the league is a natural extension once you have subscribers, streamers, and potentially hundreds of millions of consumers that you able to tap into to help. With the growth of VR, this is only going to explode even more as gaming and competitions will be very interactive. Again, points are used to participate in contests or be given to winners, etc.

3. Buy gaming studios, indie, and large ones.

In the past, the GameStop management team was so cautious about wanting to buy or even be considered a game studio company. Still, the reality is that was the best decision they could have made because the long-term was the right trend and trade. Again, with the success of Phase 1, the company will need to find studios that are interested in selling but still maintaining creative freedom just like Disney has done with Pixar. This is incredibly important to be aggressive in doing this because it allows you to tap into the other console ecosystem and extend the life of the business. The truth is there will be many companies coming out in the future, given the high demand for gaming for the foreseeable future.

4. Buy Steam or equivalent to go after PC and mobile/app space.

Steam has always been a perfect acquisition for GameStop, but for whatever reason, the company has never been interested in selling. I am sure there is an opportunity to acquire a company like this. Still, as I mentioned earlier, GameStop needs to be Everything gaming, and acquiring companies like Steam and companies that work in the mobile and app space is essential to keep expanding its network of global gamers. 

5. GameStop may eventually have to come out with its console.

Yes, it sounds crazy to consider that, but this may be the ultimate fight back to everyone in the industry that GameStop is here to stay and thrive. I would only suggest this once the company has tens of millions of paying subscription members with a healthy growth rate. It is too expensive to do now.

The massive growth and profits of monthly subscribers and steady cash flow will allow the company to develop its console and online store. If the console can be compatible with the three majors, great if not, pick a format that makes it easy for a gaming company to develop and open it up to many developers like the Apple App Store. Let anyone join. At first, the console price should be at cost or low as your goal is to take as much market share as possible. You are not going to be in the business of selling consoles for a profit. Your only focus should be to draw as many people as possible to the ecosystem. You make a deal with them to make a compatible system and run all their physical discs and let them run a digital-only version; something can be negotiated for a fee, I am sure.

GameStop to $400 a share by 2025; here is how the numbers work out.

As the company recruits more subscribers, it starts to feed into other channels of the business. Subscribers consider buying new games, participate in the points program, buy/sell at the marketplace, gift collectibles, etc. This is why SGA skyrockets because the amount of marketing they will need to attract new users will suppress earnings the first year or two may be much less profit than modeled, but the cost of growth. There are so many variables to consider, such as a decline in store count, debt increase, or decrease if there are acquisitions. As for margins, I think that all of these new business models can lead the company to double-digit operating margins. The new GameStop with double-digit revenue growth and double-digit operating margins would deserve a 20 times Earnings multiple, which takes it to over $400 a share.


GameStop management team has the opportunity to transition their business in a significant way. Apple was able to do it with the launch of the iPod with iTunes, iPhone with the app store, and iPad. It took a significant shift at the beginning by allowing their products to be compatible with Windows. I witnessed this as I was a shareholder of Apple since 2002 and sold way too early. With GameStop, there is a chance for this transition to be game-changing to the entire gaming industry.

Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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