January 25, 2021
Shares of GameStop, the world’s largest video game retailer, shot up 50% in pre-market trading as the company’s stock opened around $90 per share — almost five times higher than 14 days ago. The reason: An ongoing battle between short sellers and investors on the future of retail gaming.
The video game industry just concluded a record 2020 that saw revenue explode to $57 billion, with December sales up 25% due to new game consoles from Sony PlayStation and Microsoft Xbox.
Texas-based GameStop, which has struggled to remain relevant during the ongoing transition to digital gaming, saw operations further threatened during the early days of the pandemic. Then following increased numbers of home-bound consumers due to government-mandated orders to help stop the spread of the coronavirus, business fortunes began to rise.
On Jan. 11, GameStop announced the addition of new board members, including Ryan Cohen, co-founder of Chewy. That move set off a battle of words between short-selling firm Citron Research and speculative buyers organizing on social media. Sales of company shares exploded with more than 194 million shares changing hands on Jan. 22 — up more than eight times the daily average of 23.8 million shares.
In the process, the stock shot up from $2.57 per share on April 3, 2020, to close to $76.76 on Jan. 22, 2021.
For myriad investors looking to short the stock, i.e. borrowing stock through a broker with hopes to profit from a decline in share prices, the rising stock price wiped out their endgame.
“[GameStop] is a failing mall-based retailer,” Andrew Left, CEO of Citron, said in a YouTube video — adding that anyone buying GameStop shares at elevated prices were “the suckers at this poker game.” Investors kept buying shares anyway.
GameStop earlier in the month reported a 4.8% increase in same-store sales during the nine-week holiday period ended Jan. 2, 2021, and a 309% increase in e-commerce sales. Total sales declined 3.1%.
“The company won’t execute a turnaround by selling custom gaming PCs or collectibles,” wrote one investor. “This isn’t a deep value stock anymore. It’s a momentum bubble.”