‘Digital Assets’ Are 'Core' to Future of Gaming, Says GameStop CEO
GameStop set out 12 months ago to “transform a decaying brick-and-mortar retailer into a technology-led organization that meets customers' needs through stores, through e-commerce properties and through emerging digital marketplaces and online communities,” said CEO Matt Furlong on an earnings call Wednesday for its fiscal Q1 ended April 30. Furlong joined GameStop as CEO last June after a nine-year career at Amazon, following a string of interim CEOs after Paul Raines left for medical reasons in November 2017 (see 2203180017).
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GameStop’s main focus is on “continuing to rebuild and strengthen” its e-commerce business “after years of underinvestment,” said Furlong. It’s also pursuing growth opportunities in the cryptocurrency, non-fungible token and Web3 “gaming verticals,” all of which are expected to be “increasingly relevant for gamers of the future,” he said.
During the quarter, GameStop kept working to “pragmatically expand” product selection at its e-commerce store, while improving delivery speeds and enhancing the “in-store and online shopping experience,” said Furlong. “We also made additional investments in our assortment, infrastructure, technology and talent,” he said. “Our sizable Q1 investments should help us round out our rebuild cycle.”
In pursuing new offerings “geared to the future of gaming,” GameStop’s blockchain team “continued to drive progress when it comes to advancing new products, deepening partnerships and establishing GameStop's presence in digital asset communities,” said Furlong. A highlight was last month's launch of the GameStop Wallet, “a digital asset wallet that allows gamers and others to store, send, receive and use cryptocurrencies and NFTs across decentralized apps,” he said.
The digital wallet “will enable transactions on our new NFT marketplace when it launches in the second quarter,” said Furlong. “We firmly believe that digital assets are core to the future of gaming.” GameStop during the quarter "continued hiring individuals with experience in areas such as blockchain gaming, e-commerce and technology," said the company.
To try to meet customer demand and drive sales growth amid the "tight" supply chain, GameStop maintained inventory of $917.6 million at the close of the quarter, compared with $570.9 million at the close of the year-earlier Q1, said Furlong. The uncertain macro environment persuaded GameStop to refrain from providing “formal guidance” into fiscal Q2 ending late July, he said. Net sales in Q1 were $1.38 billion, up nearly 8% from the year-earlier quarter.
GameStop’s NFT marketplace and wallet are unlikely to become the preferred solution for console and mobile gamers, Wedbush analyst Michael Pachter wrote investors Thursday. Console and mobile walled gardens “are controlled by much larger technology companies that will be unwilling to let a third party such as GameStop capture a meaningful share of consumer spending on-platform,” he said.
The retailer will likely endure hardware procurement and supply chain issues and the “ongoing digital mix shift that erodes new and pre-owned software sales,” said Pachter, also citing the possibility of “significant cash burn” over the next year or longer related in part to spending on the NFT effort. “Shares remain at levels that are completely disconnected from the fundamentals of the business due to ongoing support from eager retail investors,” said Pachter, giving a 12-month share target of $30 vs. the early-Thursday price of $121.40. The stock closed 10.4% higher Thursday at $134.