August 26, 2019
Shares of fiscally challenged video game retailer GameStop rose almost 5% in pre-market trading Aug. 26 as Wall Street attempts to come to grips with last week’s vote of confidence from a major investor.
GameStop may be the world’s largest video game retailer with nearly 9,000 locations, but in an era of online gaming and subscription streaming, consumers coveting packaged media games is in sharp decline.
The chain earlier this month laid off 50 mid-level employees as it grapples with changing distribution and consumer consumption of video games.
New CEO George Sherman has pledged to shake up the status quo in an effort to transform the retailer, which posted a 75% drop in income in its most-recent fiscal period — driven in part by a 35% drop in console sales. Revenue fell 13.3% to $1.54 billion.
Then along came Michael Burry, the financial manager who made a fortune predicting the mortgage collapse of 2008. He was portrayed by actor Christian Bale in The Big Short — a movie showcasing the arrogance and lack of regulation that spurred the subprime mortgage industry fiasco that nearly bankrupted the global economy.
Burry’s Scion Asset Management company owns about 3% of GameStop shares. In a letter to management, Burry advocated the board initiate a $300 million stock buyback program.
Stock buybacks are often used by companies to show confidence in their stock to shareholders.
In an interview with Barron’s, Burry said GameStop’s balance sheet was actually in good shape, adding that pending new consoles from Sony and Microsoft would still feature disc drives.
“[GameStop’s fiscal future] looks worse than it actually is,” Burry told Barron’s.