GameStop (NYSE:GME) is facing an uncertain future as it continues to struggle under inadequate leadership, according to Wedbush analysts.
Shares of GameStop dropped 1% on Thursday afternoon, reflecting investor concerns.
On Thursday, the video game retailer announced the appointment of Ryan Cohen as its new CEO, following the termination of Matthew Furlong in June. However, Wedbush analysts believe that this change in leadership is unlikely to steer the company in the right direction. Cohen, the founder of Chewy (CHWY), will not receive any compensation for his role at GameStop.
“The appointment of a controlling shareholder as CEO reflects GameStop’s struggle to attract competent executives,” noted analysts Michael Pachter and Nick McKay in a September 28th report.
Cohen’s appointment was decided by the board of directors, which primarily consists of colleagues from CHWY, leading Wedbush analysts to suggest that his appointment was more of a symbolic gesture than a carefully considered choice.
GameStop’s shares have been subject to extreme volatility and speculation due to the influence of social media, as investors react to online trends. The company’s revenue has been steadily declining as consumers increasingly turn to online distribution platforms for video games, eliminating the need for physical consoles and game cartridges.
Over the past 12 months, GameStop’s shares have plummeted by 38%.
Wedbush also highlights the high turnover rate amongst GameStop executives, indicating a lack of stability and expertise within the company. “We have seen no evidence of any recruitment efforts, and it appears that the company has been unsuccessful in attracting competent replacements who are willing to join a sinking ship. The lack of clear direction and the abrupt termination of Mr. Furlong only further confirms that Mr. Cohen will struggle to assemble a capable team moving forward.”
The Wedbush analysts also criticize GameStop’s failed initiatives, including attempts to emulate the success of Amazon and the recruitment of former Amazon.com (AMZN) executives who have since left the company. GameStop has made no progress in growing its sales, with its endeavors ending in failure.
A Bleak Outlook
“Without the guidance of experienced retail executives, GameStop’s downward trajectory is likely to continue,” warn the analysts at Wedbush. “We maintain our belief that GameStop is destined for failure, as the decline of physical software sales and the shift towards digital downloads and subscriptions seal its fate.”
The Wedbush analysts have given the stock an Underperform rating, a view that is not widely shared on Wall Street.
“Mr. Cohen lacks significant experience in managing a physical retail business, and we have doubts that he was GameStop’s first choice for the position of CEO. With no viable path for a turnaround and the inevitable transition of physical software sales to digital downloads, Mr. Cohen’s appointment all but guarantees GameStop’s demise.”