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GameStop Corp (NYSE:GME) is experiencing a challenging period in its core business of selling video games and related merchandise.
However, its strategy of earning interest on large cash reserves has provided some financial relief, transforming it into something resembling a bank rather than a traditional retailer.
After a dramatic rise in its stock value in early 2021, GameStop’s shares have since dropped to $23 each, giving the company a market capitalization of around $8 billion, Reuters reports.
Despite this decline, the company’s enterprise value is more than double that of Best Buy Co (NYSE:BBY), whose sales are also declining but at a slower rate.
Despite the efforts to stabilize its finances, GameStop has kept its business model the same.
GameStop’s growing cash reserves provide a crucial buffer. If the company maintains its current operating cash burn rate, it could sustain itself for another decade, Reuters noted.
Additionally, by investing its $3 billion cash pile in U.S. treasuries yielding around 5%, GameStop could earn nearly $40 million in interest each quarter, offering a significant financial boost despite its declining core business.
In many ways, GameStop functions like a bank, utilizing cash reserves to generate income rather than relying solely on its traditional retail operations.
Analysts had criticized the company’s business model. However, experts anticipated that the company’s strong cash position and new video game console releases from Sony, Nintendo, and Microsoft would provide support.
Investors can gain exposure to GameStop via iShares Core S&P Mid-Cap ETF (NYSE:IJH) and Vanguard Small-Cap ETF (NYSE:VB).
Price Action: GME shares traded lower by 1.65% at $24.52 premarket at the last check on Wednesday.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo Courtesy 1take1shot On Shutterstock
