GameStop Stock: Don’t Count on Ryan Cohen Selling His Shares
According to GameStop’s new CEO, he will either turn the company around or go down with it.
BERNARD ZAMBONIN
OCT 4, 2023 5:23 AM EDT
Ryan Cohen, GameStop’s new CEO, owns about 12.10% of the company’s shares and is determined to lead the company to profitability.
GameStop has been implementing cost-cutting measures and reducing operating expenses, while Ryan Cohen’s personal investment and commitment signal his determination to turn the company around.
Ryan Cohen Is GameStop’s New CEO
It has been quite a journey for Ryan Cohen and GameStop.
On September 28, the company’s board of directors announced that Cohen had been appointed president and chief executive officer. In their statement, they included the interesting tidbit that Cohen will not receive any salary for taking on this new role.
Ryan Cohen, who used to be the CEO of Chewy and is GameStop’s largest individual shareholder, owns approximately 12.10% of the company’s total shares through his holding company, RC Ventures. Back in 2021, he joined GameStop’s board and eventually assumed the position of chairman.
More recently, in June of this year, Cohen took on the role of executive chairman following the departure of GameStop’s former CEO, Matt Furlong.
The Survival Memo
In his first communication as CEO, Cohen sent a memo to GameStop employees titled “Survival.” In the document, he emphasized the importance of practicing frugality given the challenging situation that GameStop’s business currently faces.
Cohen wrote:
"It is not sustainable for GameStop to operate a money-losing business. The mission is to operate hyper-efficiently and profitably. Our expense structure must allow us to endure any adverse scenario. Whether it’s a difficult economy or revenue deceleration from shrinking software, we must be profitable. Our job is to make sure GameStop is here for decades to come. Extreme frugality is required. Every expense at the company must be scrutinized under a microscope and all waste eliminated. The company has no use for delegators and money wasters. I expect everyone to treat company money like their own and lead by example.
"Prospering in retail means survival. If we survive, we stay in the game. Survival is avoiding the deadly sins that often lead retailers to self-destruct. This is usually a result of the following — buying bad inventory, using leverage, and running expenses too high. By avoiding these self-inflicted mistakes and focusing on the basics, GameStop can be here for a long time.
"I expect everyone to roll up their sleeves and work hard. I’m not getting paid, so I’m either going down with the ship or turning the company around. I much prefer the latter.
“It won’t be easy. Best of luck to us all.”
GameStop is on track for its fifth consecutive year without turning a profit. As shown in the table below, the company has consistently maintained high operating expenses, but this hasn’t translated into greater efficiency in its retail operations.
Ryan Cohen’s letter implies that he perceives there are corporate inefficiencies at work here. His memo could serve as a warning to higher-ranking individuals who might fall under the category of “delegators and money wasters.”
Over the past year, GameStop has reported approximately $1.61 billion in selling, general, and administrative (SG&A) expenses, compared to $1.47 billion in the previous 12 months. Throughout the year, the company has implemented a cost-cutting strategy and closed stores in Europe as part of its efforts to achieve profitability.
Since the beginning of the year, GameStop has progressively reduced its SG&A expenses, resulting in significant improvements in its operating income.
It’s worth noting that GameStop currently maintains a strong cash position, boasting a balance sheet of approximately $1.1 billion and virtually no debt. This financial strength provides the company with an extra cushion — particularly during times when profitability is lacking.
While it’s important to acknowledge that this financial situation may not be sustainable in the long term, GameStop appears to be relatively stable from a liquidity perspective. This also reduces the likelihood of the company resorting to equity offerings to raise additional cash, which would dilute its float.
Putting His Money Where His Mouth Is
Ryan Cohen seems to take his motto of putting his money where his mouth is quite seriously.
In June of this year, Cohen purchased an additional 443,842 shares at an average price of $22.5 per share, which is approximately 30% above the current share price. This increased his ownership to 1.770 million shares, representing 12.1% of GameStop’s total shares.
In his recent memo, he emphasized that he is not receiving any compensation for his new role as a company executive, stating, “I’m either going down with the ship or turning the company around.”
Whether the new CEO will succeed in turning the company around remains to be seen. However, one thing is clear: GameStop shareholders can expect Ryan Cohen to remain committed and not abandon the ship anytime soon.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes.)
BY BERNARD ZAMBONIN
Co-producer of The Street’s financial channels: Apple Maven, Amazon Maven and Wall Street Memes. Researcher and operations manager at DM Martins Research.