Corporate Refresh with Seasoned Industry Leaders
All about the GameStop transformation process
Since Ryan Cohen became an investor, there have been massive changes to the corporate leadership team at GameStop including 400 new executives from Microsoft, Google, Amazon, Chewy, and many other big tech companies.
Why would leaders leave well-paid roles at blue chip companies to work for GameStop, with many taking compensation packages that include a large amount of GameStop stock?
New Leadership Takes Charge
Matt Furlong was appointed as CEO in June of 2021. He is a veteran e-commerce leader who was most recently a Country Leader and oversaw Amazon’s Australia business.
Furlong left Amazon to work for GameStop, earning a yearly salary of $200,000. He is eligible for nearly $5 million in sign-on bonuses that come monthly, but the vast majority of his compensation comes in stock - $16.5 million in stock to be exact. Read the 8-K here. Matt Furlong holds 72,678 shares at an average price of roughly $226.75 paid out over the course of a few years. To make any money on that, he’ll need to make sure the company continues to grow, expand, and become profitable.
In March 2022 Furlong briefly outlined his vision for and satisfaction with the company during the Q4 2021 Earnings Call: “The first year of our transformation was about starting to turn GameStop into a customer-obsessed technology company, one that has wider offerings, more competitive pricing, faster shipping, stronger customer service and an easier shopping experience… GameStop is a completely different company today than it was at the beginning of the fiscal year” (read full transcript).
More Talent Arrives
A hiring spree of the top talent in e-commerce retail and blockchain technology became the focus in GameStop’s transformation, as laid out in Cohen’s letter to the board. Matt Finestone, Head of Blockchain, left his position as Loopring Head of Business.
Matt Finestone, in his personal blog, writes: “The fact is, an opportunity has presented itself that I am extremely excited about, and I feel I simply must take. I view it as a once-in-a-lifetime, perfect-timing, far-reaching opportunity/challenge that I need to pursue for its own sake, and for my personal development”.
We now know that Loopring is powering GameStop’s upcoming NFT marketplace, but that might not be what defines Matt Finestone’s “once-in-a-lifetime” opportunity. What kind of functionality will GameStop’s marketplace have that so greatly excites such a veteran of the Ethereum space?
Matt Francis was appointed as GameStop’s very first Chief Technology Officer and signifies the company’s true pivot to a technology company. Francis is a 20 year industry veteran who left a leadership position at Amazon AWS and previously worked at both QVC and Zulily; the CTO’s responsibilities will include overseeing e-commerce and technology functions. Matt has an impressive resume and must see something in GameStop that is worth leaving an established giant like Amazon.
Furlong and Finestone are only two among a host of people who have been picked for their experience at successful tech companies to refresh and update GameStop at all levels. With a team of new and talented individuals in place and strong industry leaders to guide them, the company is poised to transform into the next e-commerce giant.
Insiders Continue to Buy Stock
As mentioned by Furlong in the Q4 2021 Earnings Call, the company has introduced a more equity-focused executive compensation structure to increase alignment with stockholders. Days later, RC Ventures announced that Ryan Cohen picked up another 100,000 shares of GME. Larry Cheng also purchased an additional 4,000 shares around the same time. Not to mention, Attal Alain got himself another 1,500 shares only three days after Cheng. One thing is clear from those on the inside: GME stock is undervalued.
GameStop Stock Split as a Stock Dividend
Shortly after these insider acquisitions, GameStop publicly announced on March 31st its intent to do a stock split, in the form of a stock dividend, pending shareholder approval of an increase in authorized shares from 300 million to 1 billion. Shareholders approved, GameStop did a 4:1 stock split in the form of a dividend on July 21, 2022. If you had 1 GameStop share valued at $153.47(US) dollars, you received 3 new shares issued to you, and investors that received the dividend now own 4 shares each worth $38.37(US) dollars.
Stock splits generally indicate strong belief from leadership that stock of the company will rise in the future. In 2020, Tesla’s dividend split announcement triggered a massive 80% run-up leading up to the split. On top of that, the stock gained another 120% after the split. If you had bought $500 of stock the day Tesla announced their split, it would be worth $1980 dollars today! That’s nearly a 400% ROI in just a year and a half!.
Following in Tesla’s footsteps, GameStop has also elected to do their split in the form of stock dividend. The key difference between a dividend and a normal split is that short sellers must purchase additional shares to deliver to their lenders in the case of a dividend, rather than having the shares multiplied, as would be the case in a regular split.
"If an investor is short a stock on the record date, they are...responsible for paying the dividend owed to the lender of the shorted stock that they borrowed."
This is a stock dividend and must be paid in shares rather than cash. Let’s step into the shoes of a theoretical investor (Investor A) who is short 100 shares of GameStop- for simplicity’s sake, we’ll assume a 5:1 split and treat the 100 shares as one unit (no partial buying/selling):
Investor A has two general options in the face of a dividend-split:
Buy-to-close the 100 shares for the short position pre-dividend split, this way they will not be on the hook for additional shares.
Keep the short position open and be required to deliver 400 additional shares post-dividend split. This is much more risky because if the price goes up post-split, losses for short sellers will be multiplied greatly. While a $10 increase from $200 to $210 pre-split would incur a $1,000 loss for the short seller, that same $10 increase from $40 to $50 post-split would incur a $5,000 loss.
Regardless of whether investor A picks option 1 or option 2, both scenarios result in the creation of buying pressure, which could lead to an increase in stock price. GameStop clearly has a plan in place to protect their shareholders from predatory short sellers that have plagued the company in the past, while also increasing value for their shareholders. Direct registering GameStop shares is the only way to guarantee you will receive the share dividend, as some brokers have anecdotally stated, they will only pay out dividends in cash. Learn more about Direct Registration here.
Leadership Investing in the Company is an Investor’s Dream
The continued acquisition of top talent, and that talent continuing to buy into the company before an upcoming stock split looks incredibly good for the future of GameStop. The people that are most in the know about the company believe in their ability to be successful. There is a well known Peter Lynch quote that is particularly apt here: "insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise."
Industry veterans believe GameStop is going places, and they are putting their money where their mouth is. It's an extremely bullish sign for GameStop investors everywhere.