By Suzanne McGee
(Reuters) -When Keith Gill appeared on a YouTube video in the summer of 2020 to discuss GameStop (NYSE:GME), he argued that the company's future was far rosier than the market expected. Nearly four years later, he remains bullish, even if most of his key predictions have gone unfulfilled.
The stock influencer, who uses the moniker Roaring Kitty, has again made an argument for GameStop after a long absence from social media, reviving the meme stock trend that GameStop's roller-coaster stock-market ride in 2021 helped to spark.
This year, GameStop's volatile shares have jumped 45% and trade around $25, after Gill revealed publicly this month a $116-million investment in the company.
Many of the predictions underpinning Gill's original thesis and investor exuberance, however, such as a revival in sales and profitability, have yet to sustainably materialize, based on Reuters' evaluation of his public statements and GameStop's financial disclosures.
"During the first go around in 2020, some of his thinking was really thoughtful and absolutely spot-on," said Michael Pachter, an analyst at Wedbush Securities, who has covered GameStop for more than 20 years. Today, however, the company's core business faces growing challenges, he said.
Texas-based GameStop, which holds its annual shareholder meeting on Thursday, did not respond to e-mail and telephone requests for comment. Gill could not be reached by email or phone.
BULLISH ARGUMENTS
Gill originally forecast that GameStop, a retailer of new and used video games, consoles and collectibles, would grow revenues and earnings and embrace a transformative business strategy based on fostering a gamer community.
Gill predicted in July 2020 that the competitive threat to GameStop's retail operations from digital downloads of games was "overblown." He argued that the industry-wide transition to digital seemed slower than bears feared.
GameStop has reduced its number of physical stores by 9% from 2021 to 4,169 in its most recent fiscal year.
Pachter said that the market selling physical gaming software has shrunk rapidly since 2020. He calculates that sales of physical software account for about 3% of the overall gaming market, which he estimates at $183 billion, versus 4% in 2020.
Newzoo, a gaming analytics firm, said in a May 2024 review, that the market has almost entirely moved away from physical sales. GameStop does not break down the split between its physical and digital software sales.
Gill also predicted that then-CEO George Sherman's "GameStop Reboot" plan would reinvent the company as a premier gaming hub. To support this, Gill pointed to the launch in fall of 2019 of a dozen concept stores that included interactive gaming spaces.
Gill reiterated his bullish view in Congressional testimony in February 2021, saying GameStop "has a unique opportunity to pivot to a technology-driven business by embracing the digital economy."
Following the pandemic and disappointing financial results, GameStop ceased providing updates about its concept stores, however, according to a Reuters review of its filings.
GameStop disclosed in its annual earnings filings the closure of its cryptocurrency and NFT (non-fungible token) business, which included a partnership with now-defunct FTX.
GameStop CEO Ryan Cohen did not respond to requests for comment. Neither of its two most recent CEOs, George Sherman and Matt Furlong, responded to requests for comment made via business social media platform LinkedIn.
In one of his few public commentaries on his involvement with GameStop - a November 2022 video interview with GMEdd.com, - Cohen said he would rather be "an e-commerce company than a bricks-and-mortar retailer." GMEdd.com is a collective of retail investors tracking the company's stock.
Zacks Equity Research, while rating GameStop a "sell", said in a report published Monday that "management is progressing well with its growth endeavors" by strengthening e-commerce delivery and service.
Gill's latest YouTube livestream came this month, hours after GameStop posted a 29% decline in sales for the first quarter, although it reported a narrower loss. In 2020, Gill forecast earnings and revenues would improve.
“I expect earnings to improve significantly,” from the second half of 2020 onward, Gill told his followers in July 2020. GameStop posted a net loss of $215 million for fiscal 2020, a loss of $381 million in fiscal 2021 and a loss of $313 million in 2022.
The company, however, posted a profit of $6.7 million for fiscal 2023 as it reduced expenses.
Gill was similarly bullish on revenues back in 2020, awaiting the release of new consoles by major gaming companies. "You might get a big jump next year," he said in August that year.
GameStop recorded revenues of $5.09 billion in fiscal 2020 which rose to $6.01 billion in fiscal 2021. However, sales eased to $5.93 billion in fiscal 2022 and dipped again to $5.27 billion in fiscal 2023.
STOCK PRICE, CASH RESERVES
GameStop's sharp stock price gains during waves of retail investor enthusiasm, however, did allow the company to raise capital. It announced Tuesday it raised $2.14 billion through a fourth such sale of 75 million shares.
Pachter said share sales produced a hefty cash cushion he estimates could generate $100 million in annual interest income.
One high-profile short seller, Andrew Left of Citron Research, on Wednesday said he closed out a short position in GameStop, citing their capital raising, although he said he did not believe a turnaround in the company's fundamentals would happen.
Gill retains his faith in the company.
"Pause for a moment and think about" what might come next for GameStop, Gill told the livestream on Friday. "That becomes the bet."