GameStop certainly has some loyal investors. But there's one thing it needs much more: cash.
The struggling online retailer only has enough cash to carry it about a year at is burn rate the past 12 months, putting it in a tougher financial spot than nearly all meme stocks, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. Just one other company in the Roundhill Meme ETF, ailing exercise company Peloton Interactive, is on pace to run out of cash faster.
Such startling numbers point to financial pressure that's heating up under many money-losing companies that were so popular with investors in early 2021. The strain, too, is only intensifying as these companies' losses mount and the economy struggles. Meanwhile, getting a cash bail by borrowing money is less attractive, or even possible, as interest rates soar. The yield on the SPDR Bloomberg High Yield Bond ETF is up nearly 33% in a year.
"I see little that will change (GameStop's) dismal trajectory," said Whitney Tilson of Empire Financial Research. "This is a classic 'melting ice cube,' which almost always means the stock will be a value trap."
Sizing Up GameStop's Dilemma
GameStop's financial position isn't great. But it could be worse.
The retailer is sitting on $908 million in cash and short-term investments, largely due to it raising $1.7 billion during the meme stock mania, Tilson says. And its debt of $32 million is not too onerous.
But the company's massive cash burn is the problem. GameStop's free cash burn of $876.4 million in the past 12 months would consume its cash pile in only about a year. That includes more than $65 million in capital expenditures needed to help the company pull off a difficult pivot from mall-based video game seller to a player in digital assets.
Bullish investors hope the company can slash its cash burn to make its cash last longer. In the quarter just ended in July, GameStop burned just $123.9 million, down 39% from its average quarterly run rate in the past year. At that lower rate, the company's cash would last roughly seven quarters, or nearly two years. Analysts think the company's cash burn will fall to $100 million in the October quarter. But they also think the company will burn $483 million in the current fiscal year. That would let GameStop's cash last one year and 10 months.
Analysts, though, aren't bullish on the stock, which is already down 53% in the past 12 months to 25.73, underperforming the S&P 500's 19% drop. Wall Street analysts think the stock will fall another 38% in the next 12 months until hitting their average price target of 16 a share.
It's Not Just GameStop
GameStop is one of the fastest burners of cash. But it's far from the only meme stock in a potential cash crunch.
Fifteen of the 24 companies in the Roundhill Meme ETF burned cash in the past 12 months. And at least one makes GameStop look like a blue chip. Peloton tore though $1.9 billion in cash the past 12 months, leaving it with just $938.5 million left. At that rate, the company's cash and short-term investments will burn out in about six months. Shares are down nearly 90% in the past year.
Gambling meme stock DraftKings is only slightly better off. It burned through $674 million in cash in the past 12 months. That burn rate would consume the company's nearly $1.4 billion in cash in a little more than two years.
Sure, it's possible some of these meme companies will find ways to keep cash longer. They might try to slow their cash burn, like GameStop did in the last quarter. They could attempt to borrow. But even if they could sell bonds, they would pay onerous interest rates. GameStop's credit isn't even rated. If the S&P 500 rises, some might try to sell stock or even sell assets or the whole company to a strategic buyer.
But for now, these stock's biggest assets are the investors who like to defend them on Reddit online message boards.
Time Running Out On Meme Stocks
Members of Roundhill Meme ETF with less than three years of cash left
| Company | Symbol | One-year stock % ch. | Sector | Months of cash left* |
|---|---|---|---|---|
| Peloton Interactive | -83.1% | Consumer Discretionary | 7 | |
| GameStop | -51.7% | Consumer Discretionary | 13 | |
| Spirit AeroSystems | -40.2% | Industrials | 18 | |
| DraftKings | -72.9% | Consumer Discretionary | 26 | |
| AMC Entertainment | -87.2% | Communication Services | 26 | |
| Upstart Holdings | -94.4% | Financials | 33 | |
| Coinbase Global | -83.1% | Financials | 33 | |
| Airbnb | -52.7% | Consumer Discretionary | 36 |
Sources: IBD, S&P Global Market Intelligence, * — based on free cash flow past 12 months and cash and short-term investments as of the latest reported quarter
Follow Matt Krantz on Twitter @mattkrantz
