GameStop, AMC, BlackBerry Face Challenges Despite Stock Frenzy
By A Wall Street Journal Roundup
In the past few weeks, investors have bid up the share prices of companies such as GameStop Corp. and AMC Entertainment Holdings Inc., as short sellers have bet against them. Here is an analysis of the challenges and prospects for these businesses.
GameStop is trying to survive a yearslong erosion of its business, which has relied for nearly four decades on people visiting its bricks-and-mortar stores to buy the latest videogames and consoles, as well as to trade-in and purchase used games and gear.
The company has been stung by mounting competition from retail giants such as Amazon.com Inc. and Walmart Inc., and the advancement of technology that enables people to download games directly from consoles and computers instead of buying hard copies. It has also gone through a period of high executive turnover with Chief Executive George Sherman, a longtime retail executive who joined GameStop in 2019, being the fifth person to hold the role since November 2017.
To preserve its business, Grapevine, Texas,-based GameStop has been working to pay down debt and pledged to accelerate its e-commerce operations. In the recent holiday season, the company’s e-commerce sales rose more than 300% from the comparable year-earlier period, helped by the release of new videogame consoles from Microsoft Corp. and Sony Corp.
One of GameStop‘s newest board members, Chewy Inc. co-founder Ryan Cohen, urged the company last year to exit underperforming stores in the U.S. He also called for the company to close nonessential operations in Europe and Australia and use the proceeds to make tech improvements, such as revamping GameStop‘s online store.
Analysts expect GameStop to post its fourth consecutive annual decline in revenue in its latest fiscal year amid declines in its core operations and efforts to streamline its business.
— Sarah E. Needleman
AMC Entertainment Holdings
AMC, the world’s largest cinema chain with nearly 1,000 locations, became the latest darling of the retail trading scene after it signed a series of financing deals that are expected to help it ward off bankruptcy.
Since the onset of the coronavirus pandemic forced AMC to temporarily close most of its theaters, the Leawood, Kan.-based company has faced the real possibility running out of cash, and warned investors in October that it may need to file for chapter 11 if it doesn’t raise enough money from investors willing to bet on its recovery.
AMC’s fortunes began to turn with the introduction of coronavirus vaccines late last year, which raised hopes among investors that it won’t be too long before people start going out to the movies again.
The company has raised about $1.3 billion of debt and equity financing since December, selling out its latest shelf offering on Jan. 27 right after users in Reddit’s WallStreetBets forum turned their attention to it as the next stock to prop up.
However, AMC isn’t totally out of the woods yet, and Chief Executive Adam Aron warned on Jan. 25 that while “any talk of an imminent bankruptcy is completely off the table,” investors in AMC are still advised to exercise caution as the company’s future cash needs are uncertain in light of the continuing pandemic and new strains of the coronavirus.
— Alexander Gladstone
Bed Bath & Beyond Inc.
After an activist investor ousted prior management in 2019, the home-goods retailer is trying to fashion a turnaround under new CEO Mark Tritton, a former Target Corp. executive. Mr. Tritton has hired a new leadership team that is decluttering stores, simplifying prices and streamlining merchandise. “The wider the assortment, the more confused the customer is,” Mr. Tritton said in November.
The company is closing about 200 of its more than 970 Bed Bath & Beyond stores and has sold assets deemed noncore such as Christmas Tree Shops. It has also launched a share repurchase program totaling as much as $825 million over three years.
The company, which also owns BuyBuy Baby, is benefiting from a shift in pandemic-driven spending toward items for the home. But some analysts worry that once life returns to normal, it will give up some gains as shoppers spend more on travel and eating out. The retailer also faces heavy competition from mass market chains like Target and online rivals such as Amazon. On Jan. 26, before the stock gave up some of its recent gains, UBS downgraded it to sell over concerns that its turnaround would proceed in fits and starts and other issues.
— Suzanne Kapner
Nokia in its heyday dominated the market for hardy handsets built for making phone calls and not much else. Then the smartphone revolution robbed the Finnish company of the market share it once enjoyed, leading the company to abandon cellphones and focus on the building blocks of the mobile economy: network equipment that links mobile devices to the rest of the internet.
Nokia’s profitability has suffered since its 2016 purchase of Alcatel-Lucent, another maker of network electronics. The merger made the new company more complex and forced expensive upgrades for clients that sought standardized cellular equipment. Rivals Ericsson AB and Huawei Technologies Co. have used the opportunity to gain market share in key countries.
The company still supplies much of the world’s network gear, a market poised for growth this year as carriers install new technology to support faster fifth-generation, or 5G, wireless service. The company last year shook up its management team by naming a new chief executive and finance chief.
Nokia is preparing to sell more machines to replace cell-tower equipment from China-based Huawei, which the U.S. and many allied countries have effectively banned due to national-security concerns. But geopolitics cut both ways, and increasing tensions with the West could dent Nokia’s own sales in China.
— Drew FitzGerald
BlackBerry CEO John Chen successfully rescued the Canadian company from near collapse after he was hired in 2013 to reinvent a smartphone maker that had ceded its global market dominance to more nimble competitors such as Apple Inc. and Samsung Electronics Co. He shrank the company’s staff and global operations and licensed other manufacturers to make BlackBerry phones.
Mr. Chen, a software veteran, sought to reinvent BlackBerry by selling software and services designed to shield business and government communication systems and mobile devices from viruses and other online threats.
He sought to expand this business in 2018 with a $1.4 billion purchase of Cylance Inc., a maker of antivirus software. The acquisition hasn’t delivered the promised turnaround. Cylance’s co-founder Stuart McClure departed in 2019 and BlackBerry revenues continue to shrink. The company has reported net losses for the last seven quarters.
Another setback is uneven demand for automobiles during the Covid-19 pandemic. BlackBerry sells security products to auto makers to protect computer and communication systems in cars from cyber threats.
— Jacquie McNish
(END) Dow Jones Newswires
January 31, 2021 16:51 ET (21:51 GMT)
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