GameStop: The Stores Are Growing Again — but the Profit Came From a Billion-Dollar Bet on eBay

There is an investor trap that no chart and no valuation model can disarm, because it lives in memory rather than in a spreadsheet: the legend trap. It works like this. A stock once wrote a story so large that it reached films, talk shows and family dinners. Years later you hear the name — and your mind loads the legend, not the company. For GameStop Corp. (NYSE: GME) that legend is January 2021: retail investors against short sellers, the used-video-game store as the battlefield. Except the store is now a different business. It has lost nearly a third of its revenue in two years, closed 727 U.S. stores in fiscal 2025 alone — and describes itself in its own quarterly report the way holding companies usually describe themselves. So let us make a deal: before you buy the legend, we read together what the company itself filed with the U.S. securities regulator, the SEC — the annual report (10-K) as of January 31, 2026, the quarterly report (10-Q) as of May 2, 2026, and every filing after it through August 3, 2026. Those documents are honest under penalty of law. What you do with them is your call.

What GameStop really is today

GameStop sells video games, consoles, accessories and collectibles across 2,206 stores as of January 31, 2026: 1,598 in the United States, 308 in France, 300 in Australia. The company is based in Grapevine, Texas, employs roughly 4,000 full-time associates and, depending on the season, between 11,000 and 16,000 part-timers. Eight years ago it ran more than 7,200 stores. Canada was sold in 2025, New Zealand closed, and an agreement is in place for the potential sale of the French operations. The assortment splits into three groups: hardware and accessories (consoles, controllers, headsets), software (new and pre-owned games, downloads) and collectibles (apparel, toys, trading cards, gadgets). On top sits the company's oldest idea: buying used product in the store for cash or credit, refurbishing it in its own centers, and selling it again.

And then the 10-Q as of May 2, 2026 contains a sentence that redefines the company:

"As we navigate the evolving commercial landscape, our business model is expanding beyond traditional retail to include value creation through disciplined capital allocation, and we view our significant cash and other sources of liquidity as a strategic asset to be deployed into investments, acquisitions, and control transactions that we believe offer long-term value."

— GameStop Corp., SEC quarterly report 10-Q as of May 2, 2026, Item 2 (Overview)

That names the central tension of this analysis, and it runs through every chapter: the stores are earning money again after years of shrinking — but the far larger share of the profit now arises alongside them, in a multi-billion-dollar cash pile and in bets on somebody else's shares. Buy GME and you buy both, and the second half rests on the decisions of one person. That person is Ryan Cohen, founder of the pet retailer Chewy, a director since 2021 and today chairman and chief executive officer. On July 7, 2026 he was re-elected with 244,771,847 votes in favor — the strongest result of all five nominees.

What a company looks like when its annual result no longer depends on its own operations but on a securities portfolio, we have worked through elsewhere: at Biglari Holdings, where profitable restaurants and insurers are routinely overwhelmed by the swings of an in-house fund. GameStop is not there yet. But the direction of travel is the same.

How the stock reached our desk

Not through one of our scanners. GameStop arrived by way of a mandatory filing: the current report (8-K) of May 4, 2026. In it the company disclosed that the previous day it had sent a non-binding letter to the chairman of the board of eBay Inc., proposing to acquire all outstanding eBay shares for $125.00 per share in a mix of cash and stock. The same day GameStop filed a Schedule 13D reporting its economic exposure to eBay. For scale: measured by market value, eBay is roughly five times the size of GameStop.

What followed can be read week by week in the filings. On May 12, 2026, eBay rejected the proposal — the quarterly report records it flatly under subsequent events. GameStop kept buying anyway: Amendment No. 1 on May 19 (29,078,699 shares of economic exposure), No. 2 on May 28 (34,508,990), No. 3 on June 5 (39,874,306), No. 4 on July 17. Running alongside were more than two dozen communications under Rule 425 — the form that requires companies in a pending business combination to file every public word, from a television interview to a newspaper article. Note the finding early: at GameStop, the real story of 2026 is not in the quarterly report but in the filings between them.

The numbers over the years — fairly credited

First what genuinely impresses, and there is more of it than the legend suggests. GameStop really has turned the operation around. In fiscal 2024 (through February 1, 2025) it still posted an operating loss of $26.2 million. In fiscal 2025 (through January 31, 2026) that became $232.1 million of operating income. Operating cash flow — the money the business actually brings in — rose from $145.7 million to $614.8 million; two years earlier it had been negative $203.7 million. Gross margin, the share of revenue left after buying the goods, climbed from 29.1 percent in fiscal 2024 to 33.0 percent in fiscal 2025 and to 40.7 percent in the quarter ended May 2, 2026. That is not an accounting trick; it is the result of hard cuts — fewer stores, fewer countries, less low-margin hardware.

A word on the fiscal calendar, or every figure slips. GameStop closes its books at the end of January. Fiscal 2025 ran from February 2, 2025 to January 31, 2026 and therefore covers essentially calendar year 2025. The current fiscal 2026 ends January 30, 2027; its first quarter ran from February 1 to May 2, 2026.

The other side of the story is the revenue curve — and the shift underneath it:

Total revenue fell from $5,272.8 million in fiscal 2023 through $3,823.0 million to $3,629.9 million in fiscal 2025 — nearly a third gone in two years. Inside that shrinking pie, though, a swap is under way: hardware and accessories lost 12.3 percent to $1,840.4 million, software lost 27.5 percent to $729.3 million — while collectibles gained 47.7 percent to $1,060.2 million and now account for 29.2 percent of revenue. The scale of the rebuild shows two years back: in fiscal 2023 hardware still stood at $2,996.8 million and software at $1,522.0 million against only $754.0 million of collectibles. The two old pillars have since lost almost $1.95 billion of revenue between them; the new one has gained roughly $306 million. Trading cards drive it. Since fiscal 2024 GameStop has been an authorized dealer for the grading service PSA, accepting cards for authentication and buying graded cards over the counter. The old pre-owned-games desk has become a trading-card desk. And in the quarter ended May 2, 2026 that finally showed in the top line: up 14.0 percent to $835.3 million — despite a smaller store base and despite the divested international operations.

The three largest vendors, per the annual report, are Nintendo, Sony and Pokemon, which together supply the majority of new product purchases. That is an honest dependency: whoever sells trading cards and consoles sells what those three ship.

And then comes the line the whole debate hangs on. For the quarter ended May 2, 2026 GameStop reported net income of $389.6 million, against $44.8 million a year earlier. A record. But where did it come from?

What the filings say — the uncomfortable truths

Uncomfortable truth no. 1: the stores delivered just over a quarter of the profit

The income statement in the 10-Q as of May 2, 2026 can be told in five lines. Pre-tax income was $506.4 million. It broke down like this:

$143.3 million from operations — selling games, consoles and trading cards. $83.7 million of interest on the cash balance, more than in the entire prior-year quarter ($56.9 million). $268.4 million from an unrealized mark-to-market gain on options over eBay shares. And $11.0 million from bitcoin and other income. Put it in everyday terms: picture a shopkeeper who came into an inheritance last year. The shop runs decently and throws off $143 this quarter. But he also bought stock with the inheritance that happens to be worth $268 more on paper, and he collects $84 of interest on the savings account. The year ends in a record — and the shop had little to do with it. The paper gain can just as easily be a paper loss next quarter: the company itself books it as non-operating and calls it unrealized.

Fairness requires the other half: the $143.3 million from operations is a real improvement on a loss of $10.8 million a year earlier. And the interest is no accident — it is the mechanical result of a cash pile inflated by note issuance. But anyone reading $389.6 million of net income as "GameStop is making real money again" is reading the wrong line.

Uncomfortable truth no. 2: an options bet turned into a $3.97 billion invoice

In the first quarter of fiscal 2026 GameStop built economic exposure to eBay through so-called put/call pairs. Such a pair — a purchased call combined with a written put entered into with the same counterparty — is accounted for as a single forward contract: you carry the gains and losses of the share without initially owning it. The quarterly report states purpose and size plainly:

"The objective for holding these derivatives is to obtain economic exposure to eBay Common Stock."

— GameStop Corp., SEC quarterly report 10-Q as of May 2, 2026, Note 10 "Derivative Asset"

As of May 2, 2026 those pairs covered 22,176,000 eBay shares, plus 25,000 shares held directly — together roughly 5 percent of eBay. GameStop had already posted $983.3 million of collateral. Then came May 3: the $125.00-per-share proposal. On May 12, eBay's rejection. And after that — instead of a retreat — an expansion.

Schedule 13D/A No. 4 of July 17, 2026 quantifies the result. Between June 8 and June 15 GameStop bought 3,516,077 eBay shares for $381,301,906.81. On July 15 it notified eBay that it would take physical settlement of all 39,046,658 shares underlying the put/call pairs; delivery occurred on July 17, 2026 against $3,965,077,113.19, at an aggregated average strike of $101.295333 per share. The filing names the source of funds explicitly: working capital, nothing borrowed. GameStop now holds 43,390,383 eBay shares, or 9.8 percent of the company.

An options position has become a block of stock that absorbed a good $4.3 billion in two months. For comparison: GameStop's own market value stood at roughly $8.3 billion on August 14, 2026. And the target does not want this. In a television interview on July 16, 2026 — which GameStop itself had to file as a Rule 425 communication — Ryan Cohen said he was putting "$500 million of my own money into the transaction" and had committed to taking out "$2 billion within the first year" of costs at eBay. Three days later a newspaper quoted him: "I want to own eBay — that's all I've been thinking about." That is not a footnote. That is the second half of this stock.

Uncomfortable truth no. 3: your slice of the pie can get considerably smaller

Dilution means new shares appear, earnings are spread across more heads, and your share of the company shrinks — your slice of the pie gets smaller even though the pie is the same size. At GameStop four sources are working at once, and all of them are documented.

First, the convertible notes. In April 2025 GameStop issued $1,500 million of convertible notes due 2030; in June 2025 a further $2,700 million due 2032 — both with a coupon of 0.00 percent. The company therefore pays no interest; it pays instead with the holders' right to convert into stock, at roughly $29.85 and $28.91 per share respectively. As of January 31, 2026 the balance sheet carried $4,164.3 million. Diluted earnings for the quarter ended May 2, 2026 already include 143.6 million additional shares from those notes: 448.4 million actual shares become 592.3 million diluted. That is exactly why diluted earnings per share are $0.66 while basic earnings per share are $0.87.

Second, the warrants. On October 7, 2025 GameStop distributed one warrant per ten shares to every holder — exercise price $32.00, expiry October 30, 2026, listed on the NYSE as "GME WS." A total of 59,153,963 shares is registered for issuance. Across all of fiscal 2025, 6,717 warrants were exercised. The quarterly report lists them expressly as anti-dilutive because the exercise price is "significantly above the average market price" — so they are not yet inside the 592.3 million diluted shares.

Third, the exchange of August 2, 2026. Here debt becomes equity:

"Following the closing of the Exchange, the Exchange Notes will be cancelled and no longer outstanding, and the Company's outstanding long-term debt will be reduced by approximately $1.4 billion (with approximately $1.1 billion aggregate principal amount of 2030 Notes and $1.7 billion aggregate principal amount of 2032 Notes remaining outstanding). The Exchange retires this debt without the use of cash."

— GameStop Corp., SEC current report 8-K of August 3, 2026, Item 1.01

How many shares that costs is not yet known: the number depends on the volume-weighted average price over 35 consecutive trading days beginning August 3, 2026, subject to a floor. Closing is planned for September 23, 2026. One detail in the same filing deserves attention: GameStop explicitly notes that participating holders may buy or sell shares and unwind hedges during the reference period, which could move the price "materially."

Fourth, the room for everything else. At the annual meeting on July 7, 2026 shareholders approved a charter amendment raising authorized capital to 2,500,000,000 shares. Against 448,691,257 shares actually outstanding as of June 5, 2026, that is legal headroom for more than five times the current count. The vote itself is telling: 231,693,497 in favor against 104,566,841 opposed — on every other item, opposition ran in the low single-digit millions. A meaningful slice of GameStop's own shareholders objected. What a debt-for-equity swap eventually does to existing holders is something we worked through at Beyond Meat, where convertible notes redrew the shareholder pie.

Fairness cuts the other way too: on June 2, 2026 the board approved a new $2.0 billion share repurchase authorization. It obliges the company to nothing and can be terminated at any time — but it shows both directions are open.

Uncomfortable truth no. 4: the bitcoin no longer belongs to GameStop on the balance sheet

In the second quarter of fiscal 2025 GameStop bought 4,710 bitcoin for $500 million as a treasury reserve. In the fourth quarter of the same year it pledged 4,709 of them to Coinbase Credit, Inc. in order to write covered calls — a strategy that earns premiums but caps participation in sharp price rises. The decisive sentence is in the annual report:

"Under the terms of the Collateral Agreement, the counterparty retained the right to rehypothecate, commingle, or unilaterally sell the Pledged Bitcoin. As a result of these rights, we concluded that control of the Pledged Bitcoin transferred to the counterparty."

— GameStop Corp., SEC annual report 10-K for fiscal 2025, Item 7 (Digital Assets)

The consequence: the coins were derecognized and replaced by a receivable of $368.3 million — a contractual right to receive an equivalent amount of bitcoin later. Economically, GameStop writes, that still matches direct ownership. In everyday terms: your gold is no longer in your own vault but on loan to a dealer who may re-lend and sell it, against a promise to give you the same amount of gold back one day. As long as the dealer is solvent, those are the same thing. Precisely when he is not, they are not. As of January 31, 2026 an unrealized loss of $59.7 million had also built up on the receivable, because the bitcoin price had fallen since derecognition.

Valuation: what do you get for $8.3 billion?

Market value stood at roughly $8.3 billion on August 14, 2026 (from fundamental data; the underlying count of 448,691,257 shares comes from the cover of the quarterly report as of June 5, 2026, and the implied book value of $13.02 per share matches the equity reported in that same filing exactly). As orders of magnitude that gives a price-to-book ratio of about 1.4 and a price-to-sales ratio of about 2.2 on trailing revenue of $3,732.8 million — a distinctly sporty mark for a retailer with shrinking floor space. A price-earnings ratio can be calculated (about 14 on trailing earnings), but it says little, because the earnings consist mostly of an unrealized mark-to-market gain that can flip either way.

The more honest question is what sits inside the package. As of May 2, 2026, total assets of $10,974.3 million stood against liabilities of $5,132.2 million, leaving equity of $5,842.1 million. On the asset side sat $7,397.6 million of cash, $970.5 million of marketable securities and $983.3 million of pledged collateral. Since then a large part of that has gone into the eBay block — a good $4.3 billion for 43,390,383 shares. Buy GME today and you buy, broadly: a large stake in eBay, a remainder of liquidity, $4.2 billion of face value in zero-coupon convertible notes as an offset, and a retail business that last produced $232.1 million of operating income. For the current fiscal year, a June 26, 2026 release guides to adjusted EBITDA in excess of $600 million, against $345.4 million in fiscal 2025 — a forecast, not a fact.

One point the valuation cannot capture: how much liquidity actually remains after the eBay purchases is disclosed in no published filing so far. The last audited balance sheet is dated May 2, 2026; the purchases happened in June and July. The quarterly report for the period ended August 1, 2026 will show it. Until then, the cash figure everyone quotes is older than the largest single outlay in the company's history.

Opportunities and risks at a glance

What speaks for GameStop:

• Operations have turned: operating income moved from a loss of $26.2 million in fiscal 2024 to a profit of $232.1 million in fiscal 2025, and operating cash flow from negative $203.7 million in fiscal 2023 through $145.7 million to $614.8 million. Gross margin rose from 29.1 to 33.0 percent and to 40.7 percent in the quarter ended May 2, 2026.
• Growth is back for the first time: revenue up 14.0 percent to $835.3 million in the quarter ended May 2, 2026 — despite 727 U.S. stores closed the prior year, the sale of the Canadian business and the wind-down of New Zealand.
• A viable second leg: collectibles grew 47.7 percent to $1,060.2 million in fiscal 2025 and now supply 29.2 percent of revenue; the store network doubles as an intake and payout point for graded trading cards.
• A balance sheet under no pressure: $5,842.1 million of equity, debt consisting solely of zero-coupon convertible notes maturing in 2030 and 2032 — no interest expense, no near-term repayment, and $83.7 million of interest income in the latest quarter alone.
• Guidance for the current fiscal year: adjusted EBITDA above $600 million against $345.4 million — plus a $2.0 billion repurchase authorization dated June 2, 2026.

What speaks against it:

• The profit rests on a market bet: of $506.4 million in pre-tax income for the quarter ended May 2, 2026, only $143.3 million came from operations; $268.4 million was an unrealized paper gain that can reverse just as easily.
• Concentration risk on a record scale: 43,390,383 eBay shares for a good $4.3 billion — about half of GameStop's own market value in a single foreign security, bought against the stated wishes of a target that rejected the proposal on May 12, 2026.
• Four dilution sources at once: 143.6 million shares from convertible notes already inside diluted earnings, 59.1 million warrants ($32.00, expiring October 30, 2026) still outside them, $1.4 billion of notes being exchanged for new shares, and authorized capital of 2.5 billion shares — approved against 104.6 million votes opposed.
• The retail core is still shrinking in substance: revenue down from $5,272.8 million in fiscal 2023 to $3,629.9 million in fiscal 2025, hardware down 12.3 percent, software down 27.5 percent; Nintendo, Sony and Pokemon supply the majority of new product.
• Custody risk on the bitcoin: 4,709 of 4,710 coins sit with Coinbase Credit, which may rehypothecate, commingle or unilaterally sell them; on the balance sheet they are derecognized and replaced by a $368.3 million receivable carrying $59.7 million of unrealized loss as of January 31, 2026.

A human conclusion

Back to the legend trap. Its core is not that the legend is false — January 2021 really did happen the way everyone tells it. Its core is that a story stays fixed in memory while the company keeps moving. Today's GameStop is no longer a besieged video game retailer. It is a much smaller but profitable retailer with a surprisingly strong trading-card business — and, beside it, an investment operation with billions behind it, interest-free debt, a bitcoin holding in somebody else's custody, and a 9.8 percent block in a company that wants nothing to do with the takeover. Both belong to this stock, inseparably.

So the honest question is not "Is GameStop back?" but: do you want to be a part-owner of a restructured retailer and, at the same time, a silent partner in a takeover fight decided by one person, whose outcome is your quarterly profit? If yes, you know both halves and you have a thesis. If no, you had a legend. What you do with that is your call. And that is exactly as it should be.

Sources

Every original document used in this analysis — to read for yourself:

• GameStop Corp. — SEC quarterly report 10-Q as of May 2, 2026 (filed June 11, 2026)
• GameStop Corp. — SEC annual report 10-K for fiscal 2025, balance sheet date January 31, 2026 (filed March 24, 2026)
• GameStop Corp. — SEC current report 8-K of May 4, 2026: non-binding proposal at $125.00 per eBay share
• GameStop Corp. — SEC Schedule 13D/A No. 4 on eBay Inc. (filed July 17, 2026)
• GameStop Corp. — SEC current report 8-K of August 3, 2026: exchange of $1.4 billion of convertible notes for stock
• GameStop Corp. — SEC current report 8-K of July 8, 2026: annual meeting, authorized capital of 2.5 billion shares
• GameStop Corp. — SEC current report 8-K of June 26, 2026: guidance for adjusted EBITDA above $600 million
• GameStop Corp. — SEC Rule 425 communication of July 17, 2026: transcript of the July 16, 2026 television interview with Ryan Cohen
• GameStop Corp. — SEC Rule 425 communication of July 20, 2026: newspaper interview with Ryan Cohen of July 19, 2026
• Complete SEC filing history of GameStop Corp.: EDGAR overview (sec.gov)
• Fundamental data (market value, valuation metrics, share count; data as of August 14, 2026), reconciled with the SEC filings and the SEC XBRL financial series.

Transparency & disclaimer: this analysis is journalistic commentary on publicly available information. It is not investment advice, not a regulated financial analysis, and not a solicitation to buy or sell securities. Equity investments carry substantial risk up to and including total loss. All information is provided without warranty; the data cut-off is noted in the text. The author holds no position in GameStop shares at the time of publication.