Game Store Chain Stocks Struggling – How Did GameStop Shock Wall Street?

Over the past month, a struggling game store chain has increased its stock price from an average of around $ 18 to a record-day high of $ 483, or $ 28 billion by market capitalization, more than half of all. company on the S&P 500. Even though the stock plummeted afterwards amid volatile trading.

That’s partly because hopes for a potential change have been led by new board member Ryan Cohen, who co-founded online pet care company Chewy. But a much bigger factor comes from a concerted effort among retail individual investors against short sellers who want to make money by buying stocks they think will fall in price.

The most optimistic target for GameSoft’s stock price on Wall Street is $ 33, set by Telsey Advisory Group. GameStop shares last year averaged around $ 7 and its lowest of the day was $ 2.57 in April.

“We remain skeptical of the potential for a rise in stock prices,” said Curtis Nagle, an analyst at Bank of America. Mr. Nagle has cited many “structural winds” for the industry, especially from online competition.

Meanwhile, GameStop’s revenue fell by almost half, from about $ 9.5 billion in 2011 to $ 5.3 billion expected this fiscal year. In December, the company reported sales for the first nine months of 2020 were down 31% year-over-year. Holiday sales were also disappointing.

For decades, GameStop stores had been the destination for gamers in shopping malls across the US, but the chain proved too slow to adapt as consumers reduced in-store purchases to transfer to online download via mobile devices, computers.

Attempts to diversify, including to promote a wireless business, have failed. In 2019, the company considered and abandoned its plan to sell itself while there was certain top-level leadership turmoil.

The decline in GameStop revenue

Under pressure from investors, the conglomerate began to cut costs and close inefficient stores or in areas believed to have too many stores close together. From more than 7,000 stores in 14 countries in 2018, GameStop currently has around 5,000 in 10 countries.

GameStop is also starting to focus more on “idea stores” offering customers the opportunity to try out games before buying them and compete in online tournaments. But then a pandemic struck. While the demand for video games increases as people are forced to spend more time indoors, GameStop certainly suffers when everyone shifts away from shopping malls.

Investors started noticing changes last August, however, to the time when Cohen began accumulating a stake in GameStop through his investment firm RC Ventures. It is accompanied by the expectation that the new PlayStation and Xbox game consoles will benefit the business.

Prior to the pandemic, GameStop began focusing on “Concept Stores” that offered customers the opportunity to try out games before buying them Source: Patrick T. Fallon / Bloomberg

Stocks actually rallied earlier this month after GameStop agreed to bring Mr. Cohen, Alan Attal and Jim Grube – two former Cohen’s Chewy colleagues – on the board and the day trading army joined.

Now, people no longer wonder what the company’s prospects are after things have settled down.

The pessimistic faction said the company could be devastated if the customer switched to downloading the online version, but another part emphasized that customers still want to experience a real copy of the game and GameStop still has land.

“Poor internet connectivity and widespread money worries mean that GameStop still has a foothold in the industry, allowing customers to trade games and consoles at locations,” said Michael Pachter, an analyst at Wedbush. its own store “.

James Rodriguez, a 38-year-old GameStop customer who still buys real copies of the game, said he shopped in the store more often during a pandemic because he was worried about online purchases. The route is stolen and the delivery is delayed.

However, the business model of video game retailers is constantly transitioning from online to subscription and free play of games that monetize in-game purchases.

Lewis Ward, industry analyst at International Data Corporation, said: “I lived through what happened in journalism, through what happened to digital music. “I’ve seen” this movie “before and it’s simply time to get digitized. Thought this is not an inevitable change is not true “.