GameStop Authorizes CEO to Buy Stocks Using Company Cash
In video game parlance, the board of directors of struggling retailer GameStop Corp. last week handed CEO Ryan Cohen a doozy of a power-up.
In its Form 10-Q filed on December 6, GameStop announced that the board had approved a new investment policy permitting the company to acquire equities rather than just short-term debt. Additionally, Cohen can manage the company’s investment portfolio as he sees fit. That includes purchasing shares of stock in other companies.
According to GameStop, the new policy allows Cohen to manage the company’s investments in the same manner as he would manage his personal holdings. In other words, he can invest GameStop’s money in the same companies held in his own portfolio. The board apparently justified the decision by rationalizing that the policy would “align the interests” of Cohen and GameStop.
Analyst and outspoken GameStop critic Michael Pachter of Wedbush Securities Inc. called the new policy “one of the most inane moves we have ever seen.” He pointed out the irony of a publicly traded company looking to park its own capital in other companies’ stocks.
“The company’s decision to invest in equities other than its own is alarming, implying that GameStop management believes it will achieve better returns by buying equities aside from its own,” Pachter said. “If GameStop truly believes in the value of its shares, it should use its excess cash to buy back stock.”
The new policy giving Cohen control of the company’s portfolio accompanied a bleak earnings report. For the quarter ending October 28, the company reported net sales of $1.08 billion – a 9% decrease year-over-year and a 25% decline since the same period in 2019. GameStop’s net loss was $3.1 million for the period, compared to a net loss of $94.7 million for the previous year’s third quarter – mostly attributable to cost-cutting efforts and store closures in Europe. Cash, cash equivalents and marketable securities were $1.210 billion at the close of the quarter.
Cohen was appointed GameStop CEO in September following a tumultuous summer of executive turnover and significant quarterly losses. Clearly, he’s struggling to deliver the boost sought by the company and its investors.
GameStop’s board members apparently think letting him cosplay as Warren Buffett will turn around the fortunes of the embattled retail chain. Or perhaps the company is staring down its own final boss. As the original meme stock, GameStop got a new life following the trading frenzy of early 2021, which saw the price of its shares skyrocket. None of that changed the economics of running a brick-and-mortar retailer that sells video games and toys, both of which can be easily acquired online.
If Cohen’s investing gambit doesn’t pay off, it could be game over for GameStop.
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