GameStop Eyes Going Private to Survive

GameStop, the world’s largest video game retailer, is considering strategic options in 2019 that include taking the retailer private as increasing numbers of gamers stream games from the Internet instead of buying discs.

Operating nearly 6,000 stores worldwide, GameStop has more than $800 million in bond debt – 50% of which reportedly is due this year. Revenue remained relatively flat at $5.6 billion during its most recent fiscal period (ended Nov. 3, 2018).

The company generated a net loss of $485 million compared to income of $140 million during the previous-year period. GameStop is currently headed on an interim basis by CFO Rob Lloyd.

Essentially, the retailer mirrors Redbox in 2016, when the kiosk vendor of movie DVD rentals, was acquired and taken private by investor group Apollo Global Management $1.6 billion.

Now, Apollo, and separately Sycamore Partners, is reportedly considering acquiring GameStop in a transaction that could come together in mid-February reports The Wall Street Journal, citing sources familiar with the situation.

It’s an endgame that involves closing unprofitable stores, reducing debit, according to Michael Pachter, media analyst with Wedbush Securities in Los Angeles.

“They’ve lost the interest of investors and being public causes them to do things they might not otherwise do, like try to diversify,” Pachter told the Journal.

Indeed, GameStop continues to invest heavily in the collectibles market, which include posters, T-shirts, action figures, trading cards, and costumes, among others. Collectibles sales increased 11.7% to $154.6 million.

Technology Brands, which includes the Simply Mac retail chain, generated operating earnings of $23.3 million compared to $18 million in the prior-year quarter, despite an 11.9% decline in sales to $171.1 million, primarily due to store closures.

GameStop in late November announced it was selling the Spring Mobile division for $700 million.

Regardless, some analysts expect winter holiday same-store comp sales to decline when Game Stop reports them later this month.

“GameStop has become irrelevant in the video game market,” Mike Hickey, analyst at The Benchmark Co., wrote in a note.