Wedbush Securities Analyst Michael Pachter joins Yahoo Finance Live’s Akiko Fujita and Zack Guzman to discuss GameStop entering the world of NFTs and cryptocurrency markets this year.

Video Transcript

AKIKO FUJITA: After a tough year to 20-- or tough end to 2021, GameStop is looking to make a big move to start the new year. The retailer announcing that it is now getting into the world of NFTs and cryptocurrency. Let's bring in Michael Pachter, Wedbush Securities managing director. And Michael, we should say this was those initial reports that came out. I know you've been skeptical on the stock so I'm curious to hear what you think about a potential entry into NFTs and how that could maybe give the stock a lift.

MICHAEL PACHTER: I mean, first of all, NFTs are a real thing. So NFTs, I think that's going to become a great asset. I think people are going to trade NFTs. I think as the metaverse evolves, and it's a 20-year process, you're going to see all sorts of NFTs introduced in games. And I think that the game publishers are amenable to the creation of content that can be transported in a portability among games, between games and elsewhere. So I think that's a real thing.

Problem is GameStop. And I think that it's just like if we were sitting around 25 years ago talking about video on demand, and Walmart announced they were going to get into video on demand because all the customers buy their DVDs at Walmart, so of course they're going to download movies, and they're going to pay rental fees to Walmart in the future. Same thing. It's going to be a big deal, just like VOD was a big deal, NFTS.

But GameStop really doesn't have a role in it. And I know that a lot of the GameStop apes think that, well, they have this unique relationship with their customer, and they have a great relationship with the publishers. It's just wrong. The NFTs can only be resold if the publishers allow them to be. The terms of service on digital assets are that they cannot be resold. They are licenses to use them on a single device. There is a US Supreme Court case called Autodesk that settled that. So the publishers are really going to be reluctant to let anybody trade NFTs unless they control the transaction, and they capture the lion's share of the profit. And so I don't even see a role for GameStop.

The publishers, as it happens, really hate GameStop. I mean, they have consistently complained for the last 20 years that I've covered GameStop that GameStop sells used physical games and that they don't cut the publishers in on a piece of the profits. And the only game publisher that even is nice to GameStop at all is Microsoft. Everybody else treats them just like garbage.

So I don't see any relationship here at all. And remember, their management all arrived in 2021, so it's not like these guys are longtime game people with great relationships. So I don't see the publishers allowing NFTs to be traded early on. When they do allow it, it's going to be through a controlled platform, and I think that'll be Unity or Epic or Roblox. Those are the guys who are going to win in NFT trading.

Then the final issue is anti-money laundering. Imagine if you see some shady organization buying 100 NFTs for $2 million apiece from the same guy. You know, so 200 million being funneled in. Wouldn't that raise the specter that maybe al-Qaeda is funding a terrorist cell? So in order to let this stuff happen, you need AML compliance, and you need somebody who's FINRA regulated. That's Coinbase, that's T0, that's PayPal. That's somebody who actually knows how to handle digital transactions.

And GameStop is just none of those things. So BFD, they hired 20 people. Who cares? Unless they hired all 20 people from Coinbase, I don't see how they're going to pull this off. And I don't see the publishers embracing this idea. So dead on arrival, this is a dumb idea. I hope that was clear.

ZACK GUZMAN: It sounds pretty clear. It sounds pretty clear. And I think I followed the jump immediately into al-Qaeda being some of potential customers there on GameStop's NFT platform. When we talk about it, though, it's obvious why I think a lot of this is going on. And it's not just GameStop. We see other examples all the time.

Because you have OpenSea, the big NFT platform, raising an evaluation of more than $13 billion now. And that's a big step up from where they were, I think more than 10x. I mean, when you think about that, it's obvious. But if the money is there, you know, I understand it might be a bad decision maybe if you're thinking about it fundamentally. But in the market we're in, are you surprised to see them at all, given, like you said, the management team is entirely new?

MICHAEL PACHTER: There's a difference between NFTs created by artists and NFTs like Melania Trump creating her own little NFT platform and those being tradable, because the creators want them to be traded, and they want to create value, and they want the value of their art to go up, up, up, so that the next piece is worth more. That's completely different than an NFT created in a game. So if you are Epic and you own "Fortnite," and "Fortnite" sells you a leopard skin, skin, a Leopard dotted skin in the game, they don't want you to sell that to somebody else. They want the other person who wants it to buy one from them.

So they're not into resales. Game companies are unique in how they're going to position with NFTs because they own all the inventory, and they don't want you to resell it. So I don't see this. This is different from a unique piece of art, right, than it is-- so sell shading from a comic book or something. Selling those types of NFTs sells really clever. And that's why OpenSea is going to thrive because there's all sorts of NFTs have been created. Not going to work in the games business. So GameStop is just the orphan out there, trying to figure out how to make money in an area that's going to be the last place to adopt freely traded NFTs.

AKIKO FUJITA: Well, you know, Michael, that raises a bigger question, which is something we've talked about before, is, how does GameStop find additional sources of revenue? I mean, NFTs are something we're all talking about. Like you say, it's kind of the hot topic. But you're saying that's not a good fit here. How does GameStop revive its business? I mean, how do they find that additional--

MICHAEL PACHTER: If they're going to emulate OpenSea and say, we're going to trade the Melania Trump NFT, sure, I mean, they'll be a storefront, just like anybody else will be a storefront. That's fine, but that's my Walmart example, the me, too, that we're going to offer video on demand, and you're going to pay us $5.99, instead of Apple TV or Amazon or your cable company. They can do it. And, you know, we'll see if the game customer goes to them instead of to the other platforms that have more stuff. I think, you know, that's like saying we're going to be like Amazon. You know, great. They can be like Amazon. They can be the everything store. It just takes a lot to get there. So I just think that they're starting from zero.

And I think that Ryan Cohen is audacious and has a plan that he hasn't told anybody about yet. But people familiar told the Wall Street Journal one aspect of the plan, which is NFTs and crypto. I'd like to see the rest of the plan. I'm not going to guess on what Ryan Cohen might do. I think the guy literally is the dog who was chasing the car and caught the bumper, and the car stepped on the gas. He doesn't know what to do now. I don't think there's a strategy that makes any sense, but maybe I'm wrong. Maybe he'll tell us. And when he does, I'll be very, very excited to see it.