July 25, 2024

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GameStop should ditch retail and become a holding company like Warren Buffett’s Berkshire Hathaway

3 min read

It’s time for GameStop (GME) to stick a fork in its flailing retail operations and embrace a second life as a holding company in the mold of Warren Buffett’s Berkshire Hathaway (BRK-A)(BRK-B).

GameStop is “a totally different company now,” said retail expert and investor Jeff Macke on Yahoo Finance’s ‘Opening Bid’ podcast (video above; listen in here).

Though he now refers to GameStop as a “dump truck of a company,” Macke’s sentiment wasn’t always so chilly. He said he owned its stock five years ago, when it was trading at $4 a share, with the view its operations were being undervalued.

Later, he sold the stock for $25 a share.

“I thought I was the genius of all time,” he said.

But Gamestop is filled with fundamental woes as of late, which has raised the question if the Ryan Cohen led company is even a retailer anymore.

Fiscal first-quarter results included a $32.3 million loss on revenue of $882 million. Notably, GameStop lost $50.5 million on revenue of $1.2 billion last year.

The company continues to be pummeled by structural changes in the video gaming industry — from the switch to digital downloads, to competition for eyeballs with streamers like Netflix (NFLX), to an aging console gaming base.

Cohen has basically went into hiding, not appearing on the company’s notoriously short earnings calls. His plans for GameStop aren’t known to his loyal Reddit followers or larger investors. C-suite execs have been exiting in the past two years.

GameStop also no longer has any sell-side research coverage on Wall Street, a byproduct of the stock’s insane volatility and Cohen’s relative secrecy.

Amid the latest batch of poor results, GameStop promoter Keith “Roaring Kitty” Gill returned to the scene on June 7 in a bizarre livestream; he once again touted the company, causing shares to enjoy a temporary, fleeting bump.

This follows a post on social media from Gill several weeks earlier — after a long absence — that many GameStop loyalists saw as bullish.

Cohen has used the frenzy to bolster GameStop’s cash coffers.

The company received $2.1 billion last week after selling another 75 million new shares. Some three weeks earlier, it sold 45 million shares, netting $933 million.

Investing pros like Macke are wondering what Cohen will do with all the cash. Does he go out and buy companies like Berkshire Hathaway? Does he put it into Treasuries and individual stocks ala Buffett to earn a return?

Either way, this sounds more akin to a CEO heading an asset management firm or holding entity, than one seeking to create amazing store experiences for shoppers.

Macke views plowing money into physical stores as less-than-ideal, anyway.

GameStop’s dead mall locales and outdated merchandise models are two of its numerous problems, he contended.

Instead, he envisions a scenario where GameStop ditches the dead malls and tries to function as a holding company.

“Berkshire Hathaway was a failing textile company when Warren Buffett took over,” he said, adding that GameStop looks more like “Berkshire Hathaway for suckers.”

But, with $3 billion to $4 billion in cash, the challenge is finding the best way to put that to work. “It won’t be in GameStop,” he adds. “It will be in other opportunities.”

Speaking of famed holding companies, billionaire Warren Buffett’s son Howard G. Buffett hopped on the ‘Opening Bid’ podcast to discuss his father’s decades long work at Berkshire Hathaway. Listen in below.

Grace Williams is a writer for Yahoo Finance.

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