Amazon Should Repurpose GameStop To Prime Stores
Summary
I propose Amazon (AMZN) purchase GameStop (GME) for several reasons. Clearly, Amazon has been looking for a low-cost way to establish a brick and mortar presence for easy product pickup and returns of its consumer-centric online purchase business. Second, Amazon can consolidate the GameStop business of exchanging and purchasing used video gaming disks under Amazon's online umbrella, similar to the early days of Netflix(NFLX). Lastly, Amazon can accomplish both tasks quickly, at little or NO cost, through a quick bid for GameStop at today's ultra-cheap price and valuation.
You can envision the tie-up using their logos below. Marketing plans could be drawn up quickly.
Something like the UPS (UPS) and FedEx(FDX) moves to establish an instant network of pickup and delivery options for their shipping services by purchasing your local Mail Boxes Etc or Kinko's copy center, Amazon could quickly accomplish the same with a GameStop takeover strategy today.
I have to credit others on Seeking Alpha for the idea. We were brainstorming in the comment section of author John Miller's article a few days ago. SVexpert proposed the discussion. I assume the idea of someone buying GameStop for its store locations in strip malls across America to access consumers more directly has been floated before. But it seems like a great idea to me for Amazon right now.
If Bezos is reading this story, think about the unique opportunity to quickly build out a network of nearly 4,000 "Prime" stores within a 30-minute drive of 90% of Americans. You would also own/control almost 2,000 additional outlets in Europe, Canada, and Australia. As a bonus, Amazon would have the chance to reshape the supply of used and new gaming supplies worldwide through its online sales domination.
You cannot say Amazon wants to avoid brick and mortar location costs. They purchased Whole Foods a few years ago to enter fresh food sales and delivery. Prime Now's goal is to bring food and organic supplies directly to U.S. consumers in less than two hours. The truth is GameStop fits exactly the physical store presence Amazon seems determined to bring to consumers at a local level.
The recent partnership initiative with Kohl's(KSS) is proof positive Amazon is looking for cheap and effective ways to access consumers through a physical store presence. A good first step into the area of physical store drop-offs, Amazon consumers can now return defective or unwanted goods to 1,100 Kohl's locations, found mostly in big cities. Why not have 4x the stores, all company-owned or directly controlled, more accessible to the average consumer and also allow pickups for those worried about an item being stolen from their doorstep? Just slap a "Prime" name on every GameStop location, redo some computer software at each store, retrain the hourly workers over a few weeks, and BAM job done!
What else would Amazon acquire for peanuts?
Game Informer magazine has a 7+ million circulation number that ranks in the Top 10 of all U.S. magazines for readership. Its value has been estimated in the $300-600 million range by others, highlighted in another Seeking Alpha article, written by Prudent Finances. The magazine's value is held at a tiny fraction on the balance sheet.
At the beginning of May (the last quarterly report), GameStop held $927 million in tangible book value, $540 million in cash, and $600 million in net working capital. The company owns almost $2 billion in cash, inventory and accounts receivable. In addition, the company is still projected by Wall Street analyst consensus to earn a profit and be cash flow positive in 2019 and 2020!
Adam Dukoff penned a great piece on Seeking Alpha last week on the breakup valuation of GameStop. Clearly, solid research and critical thinking are taking place on the Seeking Alpha platform. I recommend both short sellers and potential long holders in GameStop take a peek at his effort. Using breakup value numbers, GameStop may be one of the most undervalued (and unloved) companies in America during August 2019, regardless of the odds of a bid by Amazon.
Used game disk exchange through the U.S. Postal system
The exchange of gaming disks through an online order, ship to your residence subscription program, similar to how Netflix operated before video streaming services became workable, could net hundreds of millions in new profits for Amazon from existing GameStop consumers over coming years. Keeping one or two gaming disks as long as you want, then exchanging them for another game title through the mail, at your convenience, may be the future of used disk demand and sales. Amazon is the perfect fit to fulfill such a design. A $5 or $10 monthly subscription fee for the game exchange service or another free perk (selling point) of Prime membership looks like a winning proposition.
Honestly, it would take years, and likely billions of dollars for Amazon to create the same setup from scratch. Just buy GameStop for less than $500 million upfront!!! That's a proposed $1 billion bid at $11 a share. After backing out the large cash stash on the balance sheet when the takeover is complete, the net buyout price is likely under $500 million. While everyone has been preparing for a take-private bid by GameStop management, Amazon could seize the moment, and grab a huge network of stores for next to nothing. Subtracting the future integrated value of the leading third-party game disk business globally, and owning the top gaming industry magazine could mean the stock market is almost "PAYING" Amazon to purchase the GameStop enterprise today!
There exists no other quick solution for Amazon to acquire 6,000 storefronts at a cost of $83,000 per store. Based on a proposed $500 million net acquisition cost at $11 per share (subtracting cash held), Amazon would be paying about the same as store rental contract assets already on GameStop's books. No other retail option holds $1 billion in inventory that can be integrated into and complimentary with Amazon's Prime monthly subscription plan. No other retail option holds other assets that can easily be sold to bring the takeover cost closer to ZERO.
Summary
- Amazon can cheaply establish a network of Prime product pickup/return stores almost overnight, close to nearly every American consumer.
- Amazon could operate a large scale, game exchange, monthly subscription service similar to Netflix in its early days.
- Amazon could acquire nearly $2 billion of cash and game disk inventory for cents on the dollar.
- Amazon could own one of the top magazines published in the U.S., held at low cost on the balance sheet.
I propose Amazon (AMZN) purchase GameStop (GME) for several reasons. Clearly, Amazon has been looking for a low-cost way to establish a brick and mortar presence for easy product pickup and returns of its consumer-centric online purchase business. Second, Amazon can consolidate the GameStop business of exchanging and purchasing used video gaming disks under Amazon's online umbrella, similar to the early days of Netflix(NFLX). Lastly, Amazon can accomplish both tasks quickly, at little or NO cost, through a quick bid for GameStop at today's ultra-cheap price and valuation.
You can envision the tie-up using their logos below. Marketing plans could be drawn up quickly.
Something like the UPS (UPS) and FedEx(FDX) moves to establish an instant network of pickup and delivery options for their shipping services by purchasing your local Mail Boxes Etc or Kinko's copy center, Amazon could quickly accomplish the same with a GameStop takeover strategy today.
I have to credit others on Seeking Alpha for the idea. We were brainstorming in the comment section of author John Miller's article a few days ago. SVexpert proposed the discussion. I assume the idea of someone buying GameStop for its store locations in strip malls across America to access consumers more directly has been floated before. But it seems like a great idea to me for Amazon right now.
If Bezos is reading this story, think about the unique opportunity to quickly build out a network of nearly 4,000 "Prime" stores within a 30-minute drive of 90% of Americans. You would also own/control almost 2,000 additional outlets in Europe, Canada, and Australia. As a bonus, Amazon would have the chance to reshape the supply of used and new gaming supplies worldwide through its online sales domination.
You cannot say Amazon wants to avoid brick and mortar location costs. They purchased Whole Foods a few years ago to enter fresh food sales and delivery. Prime Now's goal is to bring food and organic supplies directly to U.S. consumers in less than two hours. The truth is GameStop fits exactly the physical store presence Amazon seems determined to bring to consumers at a local level.
The recent partnership initiative with Kohl's(KSS) is proof positive Amazon is looking for cheap and effective ways to access consumers through a physical store presence. A good first step into the area of physical store drop-offs, Amazon consumers can now return defective or unwanted goods to 1,100 Kohl's locations, found mostly in big cities. Why not have 4x the stores, all company-owned or directly controlled, more accessible to the average consumer and also allow pickups for those worried about an item being stolen from their doorstep? Just slap a "Prime" name on every GameStop location, redo some computer software at each store, retrain the hourly workers over a few weeks, and BAM job done!
What else would Amazon acquire for peanuts?
Game Informer magazine has a 7+ million circulation number that ranks in the Top 10 of all U.S. magazines for readership. Its value has been estimated in the $300-600 million range by others, highlighted in another Seeking Alpha article, written by Prudent Finances. The magazine's value is held at a tiny fraction on the balance sheet.
At the beginning of May (the last quarterly report), GameStop held $927 million in tangible book value, $540 million in cash, and $600 million in net working capital. The company owns almost $2 billion in cash, inventory and accounts receivable. In addition, the company is still projected by Wall Street analyst consensus to earn a profit and be cash flow positive in 2019 and 2020!
Adam Dukoff penned a great piece on Seeking Alpha last week on the breakup valuation of GameStop. Clearly, solid research and critical thinking are taking place on the Seeking Alpha platform. I recommend both short sellers and potential long holders in GameStop take a peek at his effort. Using breakup value numbers, GameStop may be one of the most undervalued (and unloved) companies in America during August 2019, regardless of the odds of a bid by Amazon.
Used game disk exchange through the U.S. Postal system
The exchange of gaming disks through an online order, ship to your residence subscription program, similar to how Netflix operated before video streaming services became workable, could net hundreds of millions in new profits for Amazon from existing GameStop consumers over coming years. Keeping one or two gaming disks as long as you want, then exchanging them for another game title through the mail, at your convenience, may be the future of used disk demand and sales. Amazon is the perfect fit to fulfill such a design. A $5 or $10 monthly subscription fee for the game exchange service or another free perk (selling point) of Prime membership looks like a winning proposition.
Honestly, it would take years, and likely billions of dollars for Amazon to create the same setup from scratch. Just buy GameStop for less than $500 million upfront!!! That's a proposed $1 billion bid at $11 a share. After backing out the large cash stash on the balance sheet when the takeover is complete, the net buyout price is likely under $500 million. While everyone has been preparing for a take-private bid by GameStop management, Amazon could seize the moment, and grab a huge network of stores for next to nothing. Subtracting the future integrated value of the leading third-party game disk business globally, and owning the top gaming industry magazine could mean the stock market is almost "PAYING" Amazon to purchase the GameStop enterprise today!
There exists no other quick solution for Amazon to acquire 6,000 storefronts at a cost of $83,000 per store. Based on a proposed $500 million net acquisition cost at $11 per share (subtracting cash held), Amazon would be paying about the same as store rental contract assets already on GameStop's books. No other retail option holds $1 billion in inventory that can be integrated into and complimentary with Amazon's Prime monthly subscription plan. No other retail option holds other assets that can easily be sold to bring the takeover cost closer to ZERO.
