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GameStop Corp. Message Board

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  • vlad57 vlad57 Feb 22, 2002 8:32 AM Flag

    Re: GME

    Ahh, how short peoples memorys are. Change the name of the company and everyone forgets the company's crappy past, and the fact that EB spanks GME regularly. The company hasn't made any money since 1999, if you exclude the pathetic 185K they made pro-forma in 2001. If you do a P/E for GME based on 1999's earnings, they're trading at 82 times. For comparison, ELBO is trading at a TTM P/E of 62 and a forward PE of 33. Same business, elbo does it better, therefpre GME is over-valued. And no, I'm not short GME or ELBO, nor do I own either. Here's a post from the ELBO board I made, for those of you with memory issues...

    "In the mid 90's, GME-then-Babbages filed for bankruptsy and, under the supervision of the bankruptcy judge, was looking for a buyer. EB was one of the bidders and actually came in with the high bid, I think somewhere near $60 million. I remember the quote from then-president Firestone "we had checkbook in hand". The judge didn't like the fact that EB was going to close a lot of stores (and therefore put a lot of people out of work), so he accepted a slightly lower bid from riggio, the guy running Barnes & Noble. If memory serves, Riggio later re-sold Babbages to B&N for $210 million or something obscene...all approved by the B&N board, of course.....snicker. This I�m fuzzy on�didn�t riggio originally found Babbages? No?

    What you are referring to is the attempted acquisition of Funco by EB in the spring of 2000. EB made a bid in the high teens for Funco, including a break-up fee of several million. Babbages/Gamestop, of course, with their long running hate for EB outbid them, EB countered, then was finally re-out-bid. EB had the brains to know everything has a maximum value and you could "overpay". Babbages certainly overpaid for a low margin business, driven by used games in strip malls. I think they paid 6 times EBITDA, not horrible for a retailer, but certainly right at the edge of getting too pricey. Ego can mess you up every time. EB was smart not to overpay and play that game, and at the very least their counter bid cost Babbages some money (I�m sure they got a laugh when they see Babbages desire to purchase, up�d the bid and saw Babbages have to pay even more!). Use my M&A valuation math, and you�ll see ELBO�s enterprise value is rich compared to EBITDA, hence my sell rating."

    GME's price will fall, risky business, low margins, GME has not figured out how to run the business right yet. Smells like disaster to me.

    Sorry for mis-spellings, I'm not to good at that.

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    • "Babbages certainly overpaid for a low margin business, driven by used games in strip malls"

      And what did they do? They added in new games to the current inventory and made those stores super successful. The excess used games were shipped to other stores in the company that normally dealt with primarily new games. This gave all of the stores a larger customer base to the point the company average of total used sales is about 20-25%. And what else is so good about that? Used games have a profit margin of 50% or so. Very smart move.

    • Actually, Riggo was co-founder of Software, Etc and not Babbage's.

      I have no complaints with a judge that had morals in the time of business decision.


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