Ryan Cohen has no 'new idea': Analyst blasts 'doomed' GameStop after leadership announcement

By James Rogers

Even with Cohen at the helm, Wedbush analyst Michael Pachter expects to see a 'continuing decline in physical game sales and store traffic' at GameStop

Activist investor Ryan Cohen was named CEO of GameStop Corp. Thursday, marking the latest chapter in his attempt to breathe new life into the video-game retailer and original meme-stock company.

While Cohen's supporters and fans of GameStop (GME) took to social media to celebrate the news, Wedbush analyst Michael Pachter was much less effusive. "It means business as usual, which is to say a slow bleed of cash with no clear alternatives to reverse the continuing decline in physical game sales and store traffic," he told MarketWatch. "Cohen's first 'idea' was to be like Amazon, so he hired a bunch of senior Amazon people and chased all of them off in less than two years."

"During their tenure, he had the 'idea' of becoming an NFT marketplace, which has failed miserably and is on course to be shut down," Pachter added. "He has no 'new idea', and clearly couldn't convince anyone competent to join his quest in tilting at windmills."

Related: GameStop's stock soars after activist investor Ryan Cohen named CEO

Cohen, the co-founder and former CEO of Chewy Inc. (CHWY), made his first investment in GameStop in August 2020 via his investment firm RC Ventures. News of Cohen's 9% stake in the gaming retailer sent its stock surging. The activist investor quickly began pushing for an overhaul of GameStop, with a focus on digital sales, and he joined the company's board in January 2021. He consolidated his power at GameStop when he became the company's chairman in June 2021.

In its statement announcing Cohen's election as CEO, GameStop confirmed that he will not receive compensation for serving as the company's president, chief executive and chairman.

Wedbush's Pachter told MarketWatch that Cohen's appointment was expected "because of the lack of alternatives" adding that "he is going to ride this horse for the duration."

Ryan Cohen becomes GameStop CEO and social media reacts: 'Changing the paradigm on Wall Street'

"We remain convinced that GameStop is doomed, as declining physical software sales and a shift of sales to subscriptions and digital downloads seal its fate," he added in a note released Thursday. "We believe that the chain could have some significant value if it were run in order to harvest profits, but don't see execution of such a turnaround without capable management."

GameStop has not yet responded to a request for comment.

The company should be trimming its store count, managing its costs in order to generate profits, and harvesting as much profit as possible in the face of continuing sales declines, according to Pachter. "Mr. Cohen has no significant experience managing a physical retailer, and we are skeptical that he was GameStop's first choice for its CEO," he added. "With no path to a turnaround and the inevitable migration of physical software sales to digital downloads, we think Mr. Cohen's appointment ensures GameStop's demise," he added.

Related: GameStop's demise could come 'later this decade,' Wedbush warns

After initially surging in premarket trades, GameStop's stock fell 1.8% Thursday on volume of 4.76 million shares, well above its 65-day average of 2.78 million trades.

GameStop's stock is down 8.8% in 2023, compared with the S&P 500 index's SPX gain of 12.1%.

The video game retailer reported better-than-expected second-quarter results earlier this month, boosted by international sales and what the company described as "a significant software release." The videogame retailer is also ramping up its efforts to control costs.

-James Rogers

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09-28-23 1201ET

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