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Why some investors are excited about Ryan Cohen as GameStop’s next chairman

Ryan Cohen in 2019 and is probably considering ways to turn around struggling brick-and-mortar retailers ...
Enlarge / Ryan Cohen in 2019 and is probably considering ways to turn around struggling brick-and-mortar retailers …

Fighting video game retailer GameStop announced Thursday that it intends to appoint Chewy.com co-founder Ryan Cohen as chairman of the board after its next shareholders̵

7; meeting on June 9. The move is likely to further encourage some investors to remain bullish on GameStop stocks and see Cohen’s plans to “transform” the retailer as an important part of its recent soaring appreciation.

Cohen, who sold pet supply retailer Chewy to PetSmart for $ 3.5 billion. Dollar in 2017, has traditionally been cautious about its investment strategy and invested in large, safe stocks such as Apple and Wells Fargo. But Cohen bought an approximately 10 percent stake in GameStop last August, as short sellers believed the already depressed stock would continue to lose value. He increased that stake to 13 percent in December and earned a number of seats on the company’s board in the process.

During his time at the dealership, Cohen has not been shy about pushing for the GameStop to “quickly turn from a brick-and-mortar mindset to a technology-driven vision,” as he put it in an SEC filing in November. “If GameStop takes practical steps to cut down on real estate costs and hire the right talent, it will have the resources to start building a powerful e-commerce platform that offers competitive pricing, wide game selection, fast shipping and a really high touch experience that excites and delights customers. “

“[Cohen] seems to have a vision of what the company should be in the future, “Telsey Advisory Group analyst Joseph Feldman told Ars in January. It is more experiential. It makes sense given the changes in the market, so maybe it helps to speed it up. It is definitely something worth looking at. “

Cohen as a corporate savior?

Cohen’s ambitious plans for GameStop have been central to some of the most bullish analysis of GameStop stocks found on Reddit’s WallStreetBets board and elsewhere. These analyzes again helped offset the short squeeze cycle that caused GameStop’s stock price to rise above $ 350 at the end of January after starting the year below $ 20.

GameStop’s stock price fell back to the $ 40 range after these peaks before shooting up again in February at $ 200 range or above. The stock has continued to largely challenge gravity since then, closing at just under $ 180 on Wednesday despite continued disappointing earnings and analyst estimates suggesting an average stock price target of $ 27.

(GameStop’s stock price rose about 10 percent immediately after the announcement Thursday morning, but was down near the previous close in the early afternoon.)

SEC rules prevented GameStop from redeeming this stock price increase back in January. Earlier this week, however, the company announced plans to sell up to 3.5 million shares in new stock to raise up to $ 1 billion in cash (or $ 622 million at Wednesday’s closing price). This money would be used “for further acceleration [GameStop]’s transformation as well as for general business purposes and further strengthening the balance sheet, “according to the announcement.

GameStop’s share price dipped shortly after the announcement of the share sale on Monday, as some shareholders realized that such a sale of new shares could dilute the value of GameStop’s approximately 70 million outstanding shares. But the stock has since returned, as some investors seem confident that the cash infusion will help Cohen’s ambitious “transformation” plan.

However, what the planned transformation will actually look like is still a bit vague. In the company’s latest earnings call, GameStop CEO George Sherman said GameStop wants to transform “into a customer-driven technology company that pleases players.” It involves “additional distribution capabilities to improve delivery speed” and “expanded product offerings” in sectors including PC gaming, mobile gaming and gaming TV, he said.

“The emphasis on the customer experience is reminiscent of Chewy, which since its inception has been praised for excellent support,” writes the optimistic author of the bullish GameStop Due Diligence website. “Ryan Cohen recently personally reached out to a dissatisfied customer, so it’s likely that this is a top priority for the new management team.”

Over on Reddit’s fierce WallStreetBets community, a post announcing Cohen’s plans to become chairman already has over 1,400 mostly dizzying comments in a matter of hours. “OH MY GOD, IT HAPPENS, GET CALM EVERYONE” reads a characteristically enthusiastic comment.

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