GameStop gives CEO complete control to buy stocks from the company’s cash books, however, analysts have given a major red flag on this.
Gaming retailer GameStop Corp (NYSE: GME) is taking a shift in its approach while allowing its CEO and chair Ryan Cohen to gain even more control in these struggling times. This includes the ability to use the company’s cash to buy new stocks.
In its quarterly report unveiled on Wednesday evening, GameStop disclosed two modifications to its corporate investment strategy. First is that it allows the use of the company’s cash to acquire equities rather than solely short-term debt. Second is that Cohen shall assume responsibility for overseeing these investments. The official filing notes:
“Mr. Cohen directs the investment activity of the Company in public and private markets pursuant to authority granted by the Board of Directors. Depending on certain market conditions and various risk factors, Mr. Cohen, in his personal capacity or through affiliated investment vehicles, may at times invest in the same companies in which the Company invests”.
The filing also notes that these investments synchronize the Company’s interests with those of affiliated parties by exposing Mr. Cohen’s personal resources to risks in a manner closely parallel to the Company’s exposure in connection with investment decisions made on its behalf.
The company opted not to conduct a quarterly conference call with Wall Street analysts. Wedbush’s Michael Pachter criticized this decision as “inane” and “alarming”. Investors have numerous investment options at their disposal, making GameStop’s role as a mutual fund unnecessary. Michael Pachter suggested that if GameStop genuinely has faith in the value of its shares, it should utilize its surplus cash for stock buybacks instead.
Is GameStop Turn Around Possible?
The modification coincides with Cohen’s struggling efforts to revitalize GameStop. In the quarter ending Oct. 28, the company reported a 9% year-over-year decline in net sales, totaling $1.08 billion, and a 25% decrease since the same period in 2019. While the net loss did decrease compared to the previous year, this was primarily a result of aggressive cost-cutting measures, including store closures in Europe.
Chewy co-founder Cohen, who purchased GameStop shares in 2020 and joined the board in 2021 during the WallStreetBets meme trading surge, aimed to leverage his e-commerce expertise to modernize the traditional video game retailer. However, the absence of a detailed turnaround plan and executive turnovers have posed challenges. CEO Matthew Furlong was dismissed in June, followed by the resignation of the CFO. Cohen assumed the CEO role in September.
GameStop’s shares closed at $14.84 per share on Wednesday, reflecting an over 80% decline from the meme-trade peak in January 2021. The stock experienced a 10% increase on Thursday.
Cohen’s recognition as a prominent investor among retail traders has transcended GameStop, with notable involvement in trading activities related to Bed Bath & Beyond, a retailer that sought bankruptcy protection in April. As indicated by FactSet, Cohen’s RC Ventures remains the largest shareholder in GameStop, maintaining ownership of 12% of the company.