What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing i'm sure. You all remember the gamestop saga. From last year, the stock increased almost 20-fold in the early months of 2021 bagging huge gains for retail investors and huge losses for short selling hedge funds. Most of the meteoric rise in share price was due to technical reasons.

Hedge funds, shorted more than 100 percent of shares that made the stock of powder keg ready to explode higher when individual investors started buying it. But beyond the technical aspect, there was also legitimate optimism about activist investor ryan cohen's plan to stage a turnaround at the company cohen is a billionaire entrepreneur who founded the pet, focused e-commerce company chewie. He bought a roughly 10 stake in the company and was subsequently appointed chairman of the board as he attempts to implement his turnaround plan. While they have made significant efforts and replace a lot of gamestop senior management team, progress has been slow if you walk into one of their retail locations today, it is almost indistinguishable from how it was before ryan cohen came on the board.

The lack of visible progress caused investors to lose patience and the stock declined by 75 percent from its highs. Over the past year, it looked like the gamestop story was finally running out of steam, but this all changed in mid-march of 2022. stock started a 10 day. Winning streak, which saw its price more than double from 78 dollars, a share to 190.

The catalyst was news that cohen purchased an additional 100 000 shares of the retailer. This indicates that he still believes that his turnaround initiatives will bear fruit and he took advantage of the relatively low share price to increase his upside after the recent purchases. His stake in the retailer has increased to 11, which is worth about 2 billion dollars at current prices. In this video we'll go over.

Why ryan cohen, bought more shares? What his turnaround plans are and whether they'll be likely to succeed gamestop is the world's largest video game, retailer selling, new and pre-owned video games and consoles throughout the 2000s and early 2010s. They were a highly profitable business and became the go-to destination for gamers around the world. However, in recent years, there's been a massive shift to people downloading their video games directly to their consoles or computers, thereby disintermediating brick and mortar retailers like gamestop, since about 2017 gamestop's revenue has been on a clear downtrend and they went from being highly profitable to posting Net losses in most quarters by 2019, things had gotten so bad that they hired the boston, consulting group or bcg to make a turnaround plan for them. Unfortunately, bcg's business proposal ended up being pretty worthless and gamestop refused to pay them.

The 30 million dollars in consulting fees cohen thought that gamestop was an incredibly valuable franchise but was being grossly mismanaged by the existing senior executive team. In november of 2020, he sent an open letter to the company saying that they needed to immediately conduct a strategic review of the business and transition to a digital first technology company. If anyone has expertise to transform gamestop, it should be ryan cohen. He founded the pet focus e-commerce company chewie, which has seen tremendous success in recent years.

Chuwi has been able to triple its revenue over the past three years by pioneering the e-commerce industry for pet products and becoming a leader in logistics for heavy items such as dog food by all metrics. The company has been a tremendous success and is now valued at 20 billion dollars, but it's unclear how relevant ryan, cohen's chewy experience is to gamestop. Pet products are physical and need to be purchased either from a brick and mortar retailer or ordered online video games are different. Gamestop's main problem is a direct downloading of video games from the xbox live, playstation and nintendo online stores, while cohen does plan to revamp the retailer's e-commerce operations.

He is aware that this has limited growth potential. He has thus thought of a completely new business venture which promises to keep the company relevant in the increasingly digital video game industry. Before we get into the details of ryan cohen's new plans for gamestop. A quick word from today's sponsor private internet access or pia, which is my vpn of choice.

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The idea is that these in-game assets will be eventually transitioned onto the blockchain and be transacted as nfts. This would make it easier for gamers to buy and sell them amongst each other and increase the general excitement within the community gamestop partnered with two blockchain companies immutablex and loopring, to make their nft marketplace a reality. They plan to launch the platform by the end of this year to kickstart interest gamestop established a 100 million dollar investment fund to provide capital to video game developers who join the platform and create nfts. This is a massive incentive to bring developers on board at this point.

They haven't given many details about the platform or how they plan to monetize it. Presumably, they would charge some sort of transaction fees on the nft trades. One massive advantage that gamestop has is this rock solid balance sheet. They took advantage of the high share price over the past year to raise over 1 billion dollars by issuing new shares.

Today they have 1.3 billion dollars of cash on hand and almost no debt. This gives them a financial war chest to do things like the 100 million developer fund, that other startups simply wouldn't have the means to do. But at this point all this is speculative. It's unclear if they'll be able to sign on aaa game titles like call of duty or league of legends onto their platform.

In fact, it seems rather unlikely. Microsoft is focused on developing their own metaverse offering and they say that this was a key motivation for their massive 70 million acquisition of activision blizzard, the developer behind the call of duty franchise to the extent that video games transition their virtual assets to nfts. There's. No particular reason that they should use the gamestop platform.

They would rather build their own platform and keep the revenue for themselves. Gamestop has 1 billion dollars to invest in their offering. Microsoft has 125 billion dollars of cash on hand. They also have the advantage of owning the xbox platform and dozens of major game studios that puts them in an infinitely stronger position than gamestop, especially if their acquisition of activision gets approved.

The fact of the matter is, there's really not a huge reason that gamestop even needs to exist anymore, similar to how streaming services spell the depth of blockbuster video. The digitization of video games is an existential threat to gamestop and there's not much. They can do about it. The video game giants xbox, playstation and nintendo have spent billions of dollars to make things like xbox game pass, which give them a direct relationship with gamers and cut out middlemen like gamestop.

So while the nft marketplace is an interesting idea, it's probably not going to be the silver bullet to save the company. While we're waiting on this new nft platform to launch gamestop's core business is continuing to deteriorate. For the fourth calendar quarter of 2021, they reported a net loss of 147 million dollars. The fourth quarter is usually their strongest quarter because of high sales during the holiday season.

The fact that they reported widening losses in their seasonally strongest quarter is cause for concern. Part of this is because they hired a lot of former amazon and chewie executives, as well as new software engineers, while these new hires could help them with their digital transformation, gamestop had to pay them high salaries to convince them to join. They have 1.3 billion on the balance sheet, but they could burn this pretty quickly, especially as they ramp up investments in their nft platform. The good news is with the recent rally in the stock price: they can easily fund their losses by issuing new shares.

It's not an exaggeration to say that retail investors gave gamestop a second chance at life. Despite the risks. There is some positive probability that the nft platform will be a success given gamestop's strong brand retail investors are basically funding this new venture by continuing to buy and hold their gamestop shares. It remains to be seen if these investments will bear fruit.

Alright guys that wraps it up for this video, what do you think about gamestop's proposed nft platform? Will it allow the company to stay relevant in the world of digital video games? Let us know in the comments section below, as always. Thank you so much for watching and we'll see in the next one wall, street millennial signing out.