By CCN Markets: GameStop might not be as hopeless as they’ve looked. On Tuesday, they laid off over 100 workers company-wide, including half of the editorial staff at GameInformer. On Wednesday, the company’s stock surged 18% thanks to one investor’s comments. Things move fast in the gaming industry.
— IGN (@IGN) August 20, 2019
GameStop Gets a Helpful Boost
Michael Burry, whose sub-prime mortgage bet was depicted in the movie “The Big Short,” just told Barron’s that he’s going long on the struggling video game retailer. Burry said that Sony and Microsoft’s next-generation consoles will still be using optical disk drives, which is good news for GameStop. Burry said:
“[The move] is going to extend GameStop’s life significantly. The streaming narrative dovetailing with the cycle is creating a perfect storm where things look terrible. [But] it looks worse than it really is.”
Burry told Barron’s that 90% of the company’s 5,700 physical stores are free-cash-flow positive.
“Balance sheet is actually in very good shape. I believe they will have the cash flow to justify a much higher share price.”
While companies like Blockbuster and Tower Records simply could not compete with their digital competition, GameStop has a chance to fight another day.
Burry believes in GameStop enough that his firm sent a letter urging them to buy back $240 million worth of stock with their cash-on-hand. His firm, Scion Asset Management, also stated that they owned a 3% stake in GameStop.
GameStop: The Struggle Is Real
Despite the recent good news, there’s no denying GameStop’s precipitous fall. They have lost over 70% of their value since the beginning of the year. Worth almost $47 per share in late 2015, the stock is now hovering around $4.
All Part of the Plan
While employee layoffs are usually a grim sign, this has been part of GameStop CEO George Sherman’s plan all along. The first part of Sherman’s “GameStop Reboot” initiative was to lower non-production costs. These costs can include advertising, taxes, and salary. He started by laying off more than 50 “field leaders” at the beginning of the month.
Sherman also plans to lower the cost of used games and “develop new revenue streams.” In addition, Gamestop recently announced a partnership with global innovation design firm R/GA to redress their physical stores. While there’s no denying that GameStop is in a tough spot with the encroaching digital marketplace, it’s clear they’re doing more than their predecessors to stay afloat.