| Author | Message | ||
     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3893 Registered: 05-2011 Rating: N/A |
GameStop says "game on" for crypto and NFT division, but endeavor brings on new set of risks (137.42 +6.39) The wild ride that is GameStop's (GME) stock is in full swing today following a report from the Wall Street Journal that highlighted the company's cryptocurrency and NFT (non-fungible token) aspirations. The knee-jerk reaction catapulted shares higher by as much as 30% after yesterday's close, but a large portion of those gains have since been wiped out. Sudden moves of this magnitude are not uncommon for this "meme stock" with a very high short interest sitting at about 13% of the total float. Undoubtedly, short covering played a significant role in the initial burst higher. However, there is also some potential fundamental value to this development. Determining that value from a financial standpoint is a very difficult task given the volatile nature of cryptocurrencies (Bitcoin is currently down nearly 40% from its highs) and the infancy of NFTs. With that in mind, here are a few over-arching takeaways from this accelerating evolution for GME: To avoid becoming another Blockbuster Video as physical game discs fade away, GME must align itself with where the gaming industry is heading. There is virtually no doubt that digital downloads of games and in-game purchasing of virtual items will continue to rise. Therefore, digital currencies and NFTs -- which use blockchain technology to record ownership of virtual items -- seem to be a natural fit for the gaming industry. Over the past year, GME has dramatically shaken up its leadership team as it implements this major digital transformation. Ryan Cohen, co-founder of Chewy (CHWY), the leading online pet food and supply company, became Chairman of the Board; while Matt Furlong and Mike Recupero came over from Amazon (AMZN) to become CEO and CFO, respectively. In our view, the changes at the top significantly improve GME's odds of successfully executing this turnaround. The executives wasted little time in carrying out the new strategy with GME aggressively hiring new NFT and Ethereum specialists to help build a Web 3.0 gaming unit. In fact, the WSJ article doesn't come as a surprise because reports surfaced in October that GME was looking to fill these new roles. Furthermore, during the Q3 earnings call on December 8, Furlong affirmed that the company is indeed exploring opportunities in blockchain, NFTs, and Web 3.0 gaming. One certainty is that it's going to take time for this transition to unfold and for GME's financial results to improve. The Q3 earnings report, which featured a much worse-than-expected loss per share of ($1.39), offered a stark reminder of how tumultuous and volatile this transition will be. By not offering financial guidance and not fielding questions during the earnings call, this point was really hammered home. That unpredictability won't improve with increased exposure to highly-volatile cryptocurrencies and NFTs, creating a different kind of risk for GME and its investors. In our view, GME's vision to develop a crypto and NFT division is compelling and it offers the company an opportunity to reinvent itself. However, this story is still fraught with high risks from both a trading and fundamental perspective. At this stage, we believe it's wise for most investors to take a wait-and-see approach, especially as the market continues to punish more speculative assets. |