GameStop: Positive Cash Flows And... Bitcoin

When I covered GameStop (NYSE:GME) last August, I spoke to its strong cash position, as well as, efforts to eliminate debt and mitigate cash burn in its surviving brick-and-mortar retail business.

GameStop (NYSE:GME) has been making some impressive improvements, which may be lost on those who are still focused on the meme stock hype from last year. When I last covered the company in August, I spoke to its strong cash position, as well as, efforts to eliminate debt and mitigate cash burn in its surviving brick-and-mortar retail business.

Impressively, GME has made material improvements, which can be seen in the numbers.

For the past two quarters, GME has been profitable on a GAAP basis. In the last quarter, net income was $61 million. This is a stark contrast to the billion-dollar net losses that the company reported in 2021.

Of course, a large portion of the recent profitability is due to the gains on its investment portfolio, which is composed largely of Bitcoin (BTC) and other cryptocurrency-related assets. In the last quarter, these gains amounted to $503 million.

However, even excluding these gains, GME would have still reported a profit. Operating expenses were $640 million, while revenue was $780 million. This leads to an operating profit of $140 million, and a net income (excluding the investment gains) of $61 million.

This profitability is even more impressive given the massive cash outlays that GME undertook last year to pay down debt and repurchase stock. In 2022, GME used $1 billion in cash to pay down debt and another $940 million to repurchase stock.

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Of course, this level of stock buybacks may not continue in the future. However, it does highlight how quickly the company's cash flows shifted from negative to positive. In 2021, the company burned through $1.9 billion in cash. But in 2022, it generated $686 million in cash flows.

This cash generation was used to pay down debt, repurchase stock, and fund new initiatives, such as its own games development studio.

While the cryptocurrency gains may be a key factor in the company's profitability, it's also worth noting the efforts that management has made to reduce operating expenses and improve the efficiency of its business.

For example, in the last quarter, selling, general and administrative expenses decreased by 27%. This is despite the fact that the company's employee count increased by 12%.

Together, these factors suggest that GameStop is slowly but surely turning its business around. The company is becoming less reliant on meme stock hype and more focused on the fundamentals of building a sustainable and profitable enterprise.

Of course, there are still risks to consider. The company's new initiatives, such as its games development studio and its NFT marketplace, may not be successful. And if the macroeconomic environment deteriorates further, it could put pressure on consumer spending and hurt GameStop's bottom line.

Ultimately, investors will need to decide for themselves whether or not they believe in GameStop's turnaround story. But with the company now profitable, debt-free, and generating strong cash flows, it does appear that the meme stock saga may finally be coming to an end.