Cramer: I was just plain wrong about this stock
It was only six months ago when investors, including Jim Cramer, wrote off GameStop (NYSE: GME) as a failure and left it for dead. After one miserable quarter after another, the stock was consistently crushed and most assumed it was roadkill.
So then what the heck happened that it was able to pull off such an amazing turnaround?
One year ago GameStop was viewed as short-sellers paradise, as the bricks and mortar videogame retailer had gone into a long-term decline due to the rise of digital downloads. After all, why would you buy games in a store when you can download them directly onto your computer?
"We know that companies can change their stripes, and that's exactly what occurred with GameStop. As this company's stock was getting viciously beaten last year, management realized that they had to take action in order to stay relevant," the "Mad Money" host said. (Tweet This)
In a small amount of time, GameStop has managed to remake itself so dramatically that some might not even recognize it anymore. It is no longer just a chain of bricks and mortar videogame stores; it also has a multichannel retailer of videogames, consumer electronics and wireless services. Meaning, GameStop is now diversified.
GameStop also has a successful loyalty program, called PowerUp rewards. The program currently has 40 million members who receive aggressive rebates and discount offers, along with exclusive entry into various sweepstakes contests. This has helped to create a loyal customer base, referred to as "high spend gamers."
GameStop loves to attract this type of client, as they spent three times more money on games annually than other customers, and purchases tend to be five times more profitable than GameStop. Attracting these types of video game addicts is very important to the company's core business, as they account for 78 percent of U.S. sales.
And while digital downloads may be growing rapidly in the videogame world, according to GameStop, they still only account for 3 percent of total videogame software. For most people in America, their internet connection could take five or six hours just to download a game. Thus, it is still easier for most people to just to got the store and buy the darned thing.
Additionally, GameStop announced that it was acquiring GeekNet, the number one player in the collectibles category for approximately $140 million. And while GeekNet is currently unprofitable, GameStop anticipates that it can grow its collectibles division into a $500 million business in the next few years. Anyone looking for an RD-D2 shaped trashcan or "Star Trek" sushi set?
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"I would be remiss not to say that I was just plain wrong about this one...I want very much for all of you, including Mr. Raines, to know that I underestimated this man and his team. Mea culpa and apologies all around," Cramer said. (Tweet This)
Looking back, Cramer thinks that the rumors of GameStop's demise were greatly exaggerated. He now acknowledges that this stock has a lot more room to run, thanks to its brilliant turnaround strategy.
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