Struggling video game retailer GameStop announced on Thursday that it plans to appoint Chewy.com co-founder Ryan Cohen as chairman of the board following its next shareholders’ meeting on June 9. on GameStop stock and see Cohen’s plans to “transform” the retailer as a key part of his recent skyrocketing value.
Cohen, who sold $ 3.5 billion worth of PetSmart pet supplies in 2017, has traditionally been cautious about his investment strategy by putting money into big, safe stocks like Apple and Wells Fargo. But Cohen bought a roughly 10 percent stake in GameStop last August, when short sellers believed the already depressing stocks would continue to lose value. He increased that stake to 13 percent in December, earning several seats on the company’s board.
During his time at the retailer, Cohen was not back to pushing GameStop to “immediately shift from a physical mindset to a technology-driven vision,” as he put it in a November SEC filing. “If GameStop takes practical steps to reduce its excessive real estate costs and hire the right talent, it will have the resources to build a powerful ecommerce platform that offers competitive pricing, a wide selection of games, fast shipping and a genuine high touch experience that excites and delights customers. “
[Cohen] appears to have a vision of what the company should be in the future, “Telsey Advisory Group analyst Joseph Feldman told Ars in January.” It is more experiential. It makes sense given the changes in the market, so maybe it will help speed that up. It is well worth a look. “
Cohen as a business savior?
Cohen’s ambitious plans for GameStop were central to some of the most optimistic analyzes of GameStop stocks to be found on Reddit’s WallStreetBets board and elsewhere. Those analyzes, in turn, helped kick-start the short squeeze cycle that caused GameStop’s stock price to spike above $ 350 in late January, after the year started below $ 20.
GameStop’s stock price fell back to the $ 40 range after those spikes, before rocketing back to prices in the $ 200 or higher range in February. The stock has largely continued to defy gravity since then, closing at just under $ 180 on Wednesday, despite continued disappointing earnings and analyst estimates suggesting a median price target of $ 27.
(GameStop’s stock price was up about 10 percent immediately after Thursday morning’s announcement, but had fallen back on the previous close by early afternoon.)
SEC rules prevented GameStop itself from cashing in on this January stock price surge. However, earlier this week, the company announced plans to sell up to 3.5 million new shares to raise up to $ 1 billion in cash (or $ 622 million at Wednesday’s closing price). That money would be used “to accelerate further [GameStop]’s transformation and for general corporate purposes and to further strengthen its balance sheet, ”the announcement said.
GameStop’s stock price fell shortly after the announcement of the stock sale on Monday, as some shareholders realized that such a sale of new shares could dilute the value of GameStop’s approximately 70 million shares outstanding. But the stock has since rebounded as some investors seem confident that the cash injection will support Cohen’s ambitious “transformation” plan.
However, what that planned transformation will actually look like is still a bit vague. In the company’s latest earnings call, GameStop CEO George Sherman said GameStop wants to transform “into a customer-obsessed technology company that thrills gamers.” That includes “additional distribution options to improve delivery speed” and “expanded product offerings” in industries such as PC gaming, mobile gaming and gaming TVs, he said.
“The emphasis on customer experience is reminiscent of Chewy, which has been lauded for outstanding support since its inception,” writes the bullish GameStop Due Diligence website’s optimistic author. “Ryan Cohen personally contacted a disgruntled customer recently, so this is probably a top priority for the new management team.”
On Reddit’s rugged WallStreetBets community, a post announcing Cohen’s plans to become chairman has made more than 1,400 mostly dizzying comments in just a few hours. “OH MY GOD IT HAPPENS, KEEP CALM EVERYONE” reads a characteristically enthusiastic comment.