‘We remain convinced that GameStop is doomed’: Analysts weigh in after CEO’s firing, Q1 earnings

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A day after videogame retailer GameStop Corp. fired Chief Executive Matthew Furlong, installed activist investor Ryan Cohen as executive chair and reported falling quarterly sales, one analyst said he remained convinced that chain was “doomed,” while others were left trying to chart the company’s path under new leadership.

Some analysts who follow GameStop
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deferred on Furlong’s ouster, and pointed to the company’s hefty cash balance, stronger hardware sales during its first quarter, as well as potential gains from greater PlayStation 5 availability and the Nintendo Switch game “The Legend of Zelda: Tears of the Kingdom.” But shares of GameStop on Thursday were still on pace for their biggest percentage decrease since 2021, when the company was still at the height of its meme-stocks crowd-surfing.

“We remain convinced that GameStop is doomed, with declining physical software sales and a shift of sales to subscription services and digital downloads sealing its fate,” Wedbush analyst Michael Pachter said in a research note on Thursday. “While we think that the chain might have some value if run in order to harvest profits, we don’t see a turnaround on the horizon without capable management.”

He said GameStop needed to close more stores — even as the company, under Cohen’s control, makes a bigger push toward brick-and-mortar retail, after he initially tried to lean into e-commerce. And Pachter said the chain needed to take more steps to rein in costs and turn a consistent profit amid falling sales.

“However, we think that the lack of clear direction and the callous termination of Mr. Furlong all but ensures that Mr. Cohen will have difficulty attracting a qualified replacement,” Pachter said.

GameStop announced Furlong’s firing, and Cohen’s elevation to executive chairman, in a brief statement on Wednesday. “In conjunction, the Company’s former CEO has been terminated,” that statement said, without offering a reason. In a tweet, Cohen — the Chewy Inc.
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co-founder who over recent years amassed a large stake in GameStop and eventual control of the company — said: “Not for long.”

Furlong, a veteran of Amazon.com Inc.
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joined GameStop as chief executive in 2021. The press release announcing his appointment as chief executive noted his e-commerce experience. Mike Recupero, another Amazon alum, also joined the company that year as chief financial officer. Recupero’s employment at GameStop was terminated last year.

“Mr. Cohen’s top secret strategy was (apparently) to ‘be like Amazon,’ and now that his Amazon executives are gone, it is unclear what strategy is guiding the company,” Pachter said.

Shares of GameStop sank 18.2% on Thursday. The drop put the stock on pace for its largest percentage decrease since June 10, 2021, when it fell 27.16%. Thursday’s decrease also wiped away a big chunk of the gains the stock had been making since May.

GameStop ended the first quarter with a narrower loss than the one it put up a year ago. The chain came out of Q1 with cash, cash equivalents and marketable securities of $1.31 billion. Sales fell 10% to $1.237 billion, dragged by a drop in software and collectibles. However, hardware sales — which made up a majority of GameStop’s revenue during the quarter — rose around 8% to $725.8 million.

Jefferies analysts, in a note on Wednesday, said the hardware sales gains were likely boosted by additional availability of PlayStation 5 consoles — something they said could propel business trends for the rest of the year. Releases like “Spider-Man 2,” a PS5 exclusive, and the Xbox exclusive “Starfield” would also aid sales during the holiday-shopping season, they said.

Still, the analysts said that software sales fell 30%, marking the biggest drop in 10 quarters, potentially due to underperforming smaller games, while broader retailer caution over weaker toy demand likely pulled sales in GameStop’s collectibles business lower. However, the software segment in the second quarter would likely get a lift from “The Legend of Zelda: Tears of the Kingdom.”

But they also noted what they said was a lack of detail in GameStop’s announcements on Wednesday — including the company’s decision not to hold an earnings call.

“It’s hard to have an opinion with no earnings call, little-to-no investor communication, and lack of consistent strategic vision,” Jefferies analyst Andrew Uerkwitz said in a note dated Wednesday.

“One consistency remains, changes at the top,” he said. “Over the last 5 years, GameStop has had 5 CEOs and 3 CFOs. Let’s see if changing the title makes a difference. It’s worth noting, the two executives hired in June 2021 as part of the board shake-up are no longer with GME.”

Other analysts said the company was likely to keep trying out new approaches to its merchandise.

“While we won’t opine on the reasons for GameStop terminating CEO Matt Furlong, as far as we could tell, he was following the digital playbook that began before his tenure,” Baird analyst Colin Sebastian said in a note on Wednesday.

“Moreover,” he said, “the company’s ‘business priorities’ now sound a lot like they were before the NFT craze. Expect more cost-cutting, store closings, and merchandise experiments.”

Shares of GameStop are down 38.1% over the past 12 months. By comparison, the S&P 500 Index is up 4.1% over that period.



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