GameStop gives its CEO complete control to purchase shares from the company’s cash book, but analysts have raised serious red flags about this.
Gaming retailer GameStop Corp (NYSE: GME) is changing its approach and allowing CEO and Chairman Ryan Cohen to take more control during these difficult times. This includes the ability to purchase new shares using the company’s cash.
In its quarterly report released Wednesday evening, GameStop disclosed two revisions to the company’s investment strategy. The first is that the company’s cash can be used to acquire stock rather than short-term debt. The second is that Cohen is responsible for overseeing these investments. Official submission notes:
“Mr. Cohen directs the Company’s investment activities in the public and private markets in accordance with the authority granted to him by the Board of Directors. Depending on particular market conditions and various risk factors, Mr. Cohen may, from time to time, invest in the Company in his personal capacity or through affiliated investment vehicles. “You can invest in the same companies.”
It further states that these investments synchronize the Company’s interests with those of its affiliates by exposing Mr. Cohen’s personal resources to risks in a manner closely similar to that to which the Company is exposed in connection with investment decisions made on Mr. Cohen’s behalf.
The company decided not to hold quarterly conference calls with Wall Street analysts. Wedbush’s Michael Pachter criticized the decision, calling it “dry” and “alarming”. Investors have a variety of investment options to choose from, making GameStop’s role as a mutual fund redundant. Michael Pachter suggested that if GameStop truly has faith in the value of its stock, it should use its excess cash to buy back shares.
Is a GameStop turnaround possible?
The revision coincides with Cohen’s struggling efforts to revitalize GameStop. For the quarter ended Oct. 28, the company reported net sales of $1.08 billion, down 9% year-over-year and down 25% from the same period in 2019. Net loss is lower than before. This was primarily the result of aggressive cost-cutting measures, including the closure of European stores.
Chewy co-founder Cohen, who bought GameStop stock in 2020 and joined the board in 2021 amid a surge in WallStreetBets meme trading, has aimed to use his e-commerce expertise to modernize the traditional video game retailer. However, there was no specific transition plan and replacement of executives was raised as an issue. Last June, CEO Matthew Furlong was fired, followed by the CFO’s resignation. Cohen assumed the CEO role in September.
GameStop’s stock closed Wednesday at $14.84 per share, reflecting a decline of more than 80% from its meme trading peak in January 2021. The stock rose 10% on Thursday.
Cohen’s profile as a prominent investor among retail traders extends beyond GameStop, where he has been prominently involved in trading activity involving Bed Bath & Beyond, a retailer that filed for bankruptcy protection last April. Cohen’s RC Ventures remains GameStop’s largest shareholder, holding a 12% stake in the company, according to FactSet.
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