GameStop's CEO Compensation Plan Fails to Address Core Business Decline and Financial Risks

What happened

GameStop's stock is trading near 52-week lows, underscoring investor doubts about its turnaround prospects despite a new compensation plan for CEO Ryan Cohen aimed at aligning his incentives with long-term shareholder value. This move comes as the company grapples with a structurally shrinking retail core, where revenue has declined from $2.23 billion in 2023 to $1.28 billion in 2025, and earnings rely heavily on non-operating items like bitcoin gains. The DeepValue report highlights severe risks, including $4.2 billion in convertible notes, significant dilution from share issuance, and volatility from bitcoin holdings, which overshadow any governance improvements. With a strong sell rating and base case valuation of $18 per share, the report emphasizes no margin of safety due to these financial and operational headwinds. Therefore, while the compensation plan may be portrayed as a positive step, it does not materially address the fundamental challenges of a low-moat business in decline.

Implication

The compensation plan ties CEO rewards to long-term value but ignores that GameStop's profitability stems from cost cuts and bitcoin speculation, not sustainable retail growth. Investors must consider the $4.2 billion in convertible notes and bitcoin exposure, which could lead to capital impairment in a downturn, reinforcing downside risks. With revenue declining and operating income fragile, the base case valuation of $18 offers limited upside, while the bear case at $11 remains plausible if crypto markets weaken. The crowded market sentiment and lack of analyst coverage further complicate any near-term rebound, making the stock unsuitable for fundamentals-driven portfolios. Until GameStop delivers consecutive quarters of operating-income-led profitability and reduces leverage, it should be avoided or only considered at deep discounts near tangible book value.

Thesis delta

The DeepValue report's strong sell thesis remains unchanged; the new compensation plan for Ryan Cohen does not alter the investment case. It is a minor governance adjustment that fails to address core issues like revenue erosion, high leverage from convertible notes, and speculative bitcoin bets. No shift in valuation scenarios or risk assessment is justified, as the plan offers no tangible improvement to business fundamentals or capital structure stability.