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GameStop timeline: A closer look at the saga that upended Wall Street

The retailer attributed this drop in sales to a number of reasons, including an «11% reduction in the store base.» Short squeezes are a risk of short selling and one that institutional investors are prepared to face, but their assumptions are based on normal investor behavior, and what’s happening right now is anything but normal. For others, it is a form of wealth transfer – the only losers in this trade are large hedge funds, and the winners are lower-income internet users, some of whom are only putting up a few thousand dollars. The “live by the sword, die by the sword” attitude to the hedge funds is, in many ways, revenge for the GFC. A lot of people are crowing that this is giving large hedge funds and traders a taste of their own medicine. Reddit forums trade tips on anything from bodybuilding to relationships and finances, but this one is about risky stock market investments.

  1. As such, I’m forecasting GameStop’s share of 2023’s total video game spending to be 8.68% representing its average share in the past 2 years.
  2. Although my model forecasts another YoY decline in sales, I don’t believe the projected decline warrants the discount the stock is trading at relative to its peers.
  3. But GameStop was the perfect target, and many of these other stocks are not as shorted nor as popular.
  4. Based on my projections, GameStop would be trading at an EV/Sales multiple of 0.62 compared to an industry average of 1.29.

Since the company hasn’t recognized any impairment charges since Q4 2022, I’m not projecting any impairment charges in 2023. H Acquired Spring Communications, Inc. («Spring Mobile»), a United States-based Apple wireless retailer. The same effect is already happening to other stocks, such as AMC, BlackBerry and Nokia. The humour, irony and self-deprecation of r/Wallstreetbets is the engine that powered the initial purchase of GameStop shares. Vanderbilt professor White told ABC News that this «David versus Goliath» saga «reflects a lot in our society» amid a pandemic that has exacerbated income inequality.

When Elon Musk tweeted “Gamestonks” and linked to the r/Wallstreetbets forum, the share price jumped about 150% in after-hours trade (although there are suggestions the timing of the rise was a coincidence). A few canny Reddit users began beating the drum, and some legitimate high-profile investors also bought in, such as Ryan Cohen, who founded the online pet food company Chewy, and trader Michael Burry, famous for his portrayal in the book and film The Big Short. A series of users on the Reddit forum r/Wallstreetbets noticed that GameStop was (a) undervalued by the market and (b) vulnerable to a short squeeze.

Day traders, organizing under the subreddit r/WallStreetBets, are holding onto the shares of GameStop that they own — despite skyrocketing values that have made some of them millions of dollars on paper — to stick it to the hedge funds. Since GameStop is a video game retailer, the company’s sales are impacted by the strength or weakness in consumer spending on video games. In 2021, US consumer spending on video games reached $60.4 billion driven by strong demand for next-gen consoles PlayStation 5 and Xbox Series X. But this does look set to change the game of short selling forever, and that will have huge ripple effects. The power of retail traders now seems higher than ever, and social media has been shown to be a remarkably effective method of stock market hype. The decision by the popular trading app Robinhood to restrict the purchase of GameStop shares through its platform on the 28th—when the stock price was still considerably elevated—also contributed heavily to the price’s sharp reversal.

GameStop: What Happened, and What It Means

The company reported profits of US$9.4 million, US$52.2 million and US$30.6 million for each fiscal year respectively. GameStop’s share price, which closed on Tuesday at $147.98 (it’s gone over $300 today) isn’t any reflection of its health or value as a company. It’s a reflection of a war between “retail investors” (individual day traders, or regular people) and institutional investors (big turnkey fintech and fx brokerage solutions Wall Street firms). It also seems to represent a shift in market behaviour, whereby the price of a stock does not necessarily reflect its underlying value. Or rather, it is yet another example of an ongoing decoupling of a company’s share price from its fundamentals, one that had already begun in earnest with the rise of passive-investment instruments, such as exchange-traded funds (ETFs).

In 2022, however, US consumer spending on video games declined 5% YoY to $56.6 billion mainly due to a light slate of new releases and macroeconomic conditions that led consumers to change their spending patterns. While some may argue that GameStop’s declining sales are mainly due to its outdated brick and mortar business model, I don’t share that view as there’s still demand for buying video games from physical locations. GameStop’s Australian division has been focused on increasing higher-margin merchandise and opening more large format hybrid stores which include both an EB Games and Zing Pop Culture store in a single location. These locations have an expanded selection of merchandise based on both games and pop culture.

The company’s performance declined during the mid-to-late 2010s due to the shift of video game sales to online shopping and failed investments by GameStop in smartphone retail. In 2021, after retail investors on Reddit noticed that the short interest exceeded 100%, the company’s stock price skyrocketed from $17.25 to over US$500 per share. According to the SEC report, this volatility was only in part due to the shorts covering their positions, but mostly thanks to the massive buying power of retail investors. The company received significant media attention during January and February 2021 due to the volatility of its stock price in the GameStop short squeeze.

Interview with Mr. Mohamed El Ghazi, Chief Executive…

The Sydney Morning Herald reported the diversification into merchandise through the establishment of the Zing Pop Culture brand in 2014 had been vital in keeping the company profitable. The newspaper reported the greater focus on merchandise allowed the company to tap into the lucrative, higher-margin merchandise market of t-shirts, figurines and bobbleheads. The newspaper noted former staff agreed that the Australian divisions’ merchandise pivot has been key to the divisions survival in Australia’s tough retail landscape. However, they also pointed to the pre-owned games segment as a major part of its success.[110][111][112] GameStop’s Australian division has been the only profitable segment of the global GameStop business for the 2020, 2021 and 2022 fiscal years.

MORE: How Reddit users sent GameStop stock soaring, upending the market

Although the company’s sales are declining and it is losing money, its stock, which closed at $325 Friday, was up over 1,600 percent in January alone, bid higher by a horde of online traders. With that in mind, video game spending in the US increased in 2023 to $57.2 billion driven by a strong holiday season where video game sales reached $7.91 billion in the period from November 26th to December 30th. According to Circana’s executive director of video games, Mat Piscatella, the spike in video game sales in 2023 was due to “one of the best release slates in industry history”.

Trending News

Based on this, my projection for GameStop’s full year revenues from hardware, accessories, and software to be $4.9 billion which would result in this segment realizing just more than $2 billion in Q4 2023. The battle began in earnest last week, when r/WallStreetBets realized that its users, who had bought into the stock when the supposed smart money was shorting it, effectively controlled the supply of GameStop shares in circulation. Now the banks need to buy that stock to cover the obligations of the short-sell bet they have made. Of course, any hype online or on social media would raise a share’s price, but without the low entry price or the short squeeze, those extreme multiplier factors aren’t there. A short squeeze happens when a stock price that was expected to fall, instead rises.

Traders who have shorted the stock now need to buy the stock to fulfil their obligations under the short – which drives the price up even further. But it has led to serious questions being asked about the way the financial system works. What are the implications of colluding in online forums to influence the prices of assets? Unfortunately, it does not seem likely that we will receive pertinent answers to such questions any time soon. He added that in many ways «there’s really no difference» between what this Reddit army did and what hedge funds or institutional investors do when they see a stock that is mispriced in some way. In early December, GameStop reported that net sales plummeted in the third quarter of its fiscal year 2020, down more than 30% compared to the same time period in 2019.

The prevailing analysis about GameStop’s impending doom was simply wrong,” one of Reddit’s most influential traders, Keith Gill, more popularly known as Roaring Kitty, declared when he appeared before Congress following the initial turbulence. The fact the GameStop’s share price remains elevated following news that it made structural changes to successfully transition away from a brick-and-mortar business to an online model would suggest his view is far from being extreme. Based on my projections, GameStop would be trading at an EV/Sales multiple of 0.62 compared to an industry average of 1.29. That said, I believe the company should still trade at a discount relative to its peers due to its declining sales which is why I have a target EV/Sales multiple of 1. Therefore, my price target for GameStop is $21.18 per share, implying 62% upside from its current share price of $13.10.

A brokerage that marketed itself as being accessible to small retail investors and promoting the democratisation of finance and investing was all of a sudden suspending its service to those very investors at the most crucial time. Naturally, this led to widespread accusations that it was protecting the wealthy billionaire hedge-funds managers—the Goliaths—at the expense of the Davids. That history makes the recent frenzy in the shares of GameStop all the more strange.

That said, I expect GameStop to beat analysts’ estimates due to stronger video game sales in the holiday season compared to 2022. Although my model forecasts another YoY decline in sales, I don’t believe the projected decline warrants the discount the stock is trading at relative to its peers. As such, I’m rating GameStop as a buy with a price target of $21.18 per share, representing 62% upside from current levels. GameStop is an American brick-and-mortar retailer that specialises in video games, consumer electronics and gaming merchandise. It was widely deemed a company in declining health—indeed, its mere existence as a physical shop was viewed on Wall Street as being decidedly outdated, and its business model was hurtling towards failure. This bearish view was only further reinforced by GameStop’s share price, which had been on a long-term downtrend—from just below $50 at the start of 2014 to a mere $3 about a year ago.

You may have noticed that the stock price of GameStop, a struggling US computer games retail company, has soared from US$96.80 to $347.50 in the past three days – a rise of 359%. Or, more impressively, a rise of 10,692% compared to its price of $3.25 in April 2020. The now-legendary r/wallstreetbets page was started in 2012, according to a Wall Street Journal interview with one of the founders.

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