Aristotle believed that “the whole is greater than the sum of its parts.” If we apply the same logic to GameStop’s future valuation, the company is worth well north of $20 billion and might even be worth as much as $30 billion. However, the reality is much more nuanced. Before the meme stock mania of 2021, GameStop was traversing a terminal decline trajectory, with foot traffic plummeting and the last vestiges of resistance among hardcore gamers to online downloads eliminated by the pandemic and the attendant social distancing realities. However, the video game retailer’s newfound popularity among retail investors allowed it to raise a sizable repository of cash, which it is now enthusiastically plowing into its Web3 initiatives. As a refresher, GameStop is about to officially launch a dedicated NFT marketplace that is built on Loopring’s technology and harnesses the ability of Immutable X – an Ethereum Layer 2 (L2) solution – to allow for the minting and trading of NFTs in a “carbon-neutral” and zero-fee environment. In order to attract NFT creators, GameStop has created a $100 million fund that is denominated in Immutable X’s IMX tokens. Eventually, GameStop aims to host billions of low-cost, in-game digital assets and NFTs, including digital real estate and in-game skins, thereby creating a sizable new source for revenue generation.
You can swap ETH and ERC20 tokens for one another, on Layer 1 using the 0x API, and on Layer 2 using the Loopring DEX. pic.twitter.com/yyXJcAP2Nu — GameStopNFT (@GameStopNFT) July 6, 2022 Additionally, GameStop has also launched a browser extension-based digital wallet that would allow users to send, receive, and store cryptocurrencies (ERC 20 tokens and Ethereum) as well as NFTs conveniently. Moreover, in what might well be the wallet’s star attraction, users can swap different tokens directly within GameStop’s digital wallet without the need to offload funds to an exchange. With this primer out of the way, let’s discuss GameStop’s valuation.
Should GameStop’s Market Capitalization be Based on the Sum of the Valuation Accorded to MetaMask and OpenSea?
For the uninitiated, MetaMask is one of the most popular crypto wallets currently on the market, with 30 million monthly active users. ConsenSys, the company behind the MetaMask wallet, was last valued at $7 billion back in March 2022. On the other hand, OpenSea is the most popular NFT marketplace in the world and was valued at over $13 billion back in January 2022. Given that GameStop is trying to capture the raison d’être of both MetaMask and OpenSea, it is hardly a surprise that some investors believe that the video game retailer’s market capitalization should now take into account the valuation accorded to MetaMask and OpenSea. However, there are a few lacunas in this line of thinking. First, in light of the ongoing carnage in the wider crypto sphere, both MetaMask and OpenSea would be accorded a much lower valuation if a new funding round takes place today. Second, GameStop’s Web3 push is still a bit fuzzy on the edges. For instance, the company has already announced that it eventually seeks to enter into a partnership with around a dozen other crypto-focused enterprises. However, apart from Immutable X and Loopring, virtually nothing is known about the rest of the prospective partners. Critically, the success of GameStop’s NFT marketplace initiative ultimately boils down to the outcome of its negotiations with major game publishers – the same entities who have been on the receiving end of GameStop’s used game resale business. Given the uncertainties involved, it is not surprising that the market remains reluctant to incorporate an upside to GameStop’s market capitalization at this stage. Of course, the ongoing macroeconomic environment, punctuated by a Federal Reserve bent on hiking interest rates to curb an out-of-control inflationary impulse and a rapidly slowing down US economy, is not conducive for speculative plays. It is for this reason that growth-focused equities have been pummeled viciously over the past few months. The combined valuation of MetaMask and OpenSea roughly computes at $20 billion, based on the funding rounds that took place before the current crypto carnage accelerated. In today’s environment, these enterprises would easily be worth around half of their previous lofty valuation. Let’s be ultra-conservative and assume that the two businesses combined are worth just $5 billion today. This means that GameStop’s market capitalization should increase by at least $5 billion and compute at $13.94 billion, thereby corresponding to a stock price of $183 and entailing a gain of 56 percent relative to the company’s current stock price. Of course, complicating this simple analysis is the still-fuzzy nature of GameStop’s Web3-related ambitions, which continues to demand a hefty discount.
