Do you recall the cult of GameStop (GME) on Reddit's popular online investing community WallStreetBets?
It was a match made in heaven or well, technically, in the pandemic. Their wildly popular chemistry captured the imagination of millions invested in the stock market, in a way that lends itself to a classic victorian romance novel, packed with an enticing beginning.
But then eventually the trope of conflict is what drives the story forward.
Today, GameStop mentions on WallStreetBets are part of threads about the most painful trading losses.
Ask WallStreetBets Founder Jamie Rogozinski about the heady days of GameStop's trading frenzy that catapulted the stock to almost $500 a share at its peak, last year, in January, and he paints a grim picture for the future.
"It is unlikely that we will get to see that again, mainly because the market itself is wise. A lot of the manoeuvres that were done in order to make GameStop work have already been plugged. It wasn't just people buying this stock, it was more much more than that," Rogozinski told Yahoo Finance in an interview.
Users on WallStreetBets echo Rogozinski's views.
Rogozinski hasn’t moderated the popular Reddit message board, that specializes in higher risk, higher reward investments than what one might find in other more conservative financial communities, since April 2020.
He told Yahoo Finance he is working to build a "finance entertainment brand" in the form of podcasts and websites.
“The market is now putting defences against that type of volatility but that's great, because now this inefficiency has been fixed. The market is slightly better and more robust and more sustainable than it was prior to GameStop," Rogozinski added.
Going forward he expects WallStreetBets like communities to explode in the world of crypto.
"It's so new that the number of inefficiencies waiting to be exploited are infinite. It's just so easy to find inefficiencies and exploit them right now," he said.
Image source: Stephen Zenner/SOPA Images/LightRocket via Getty Images
Gamestop's Transition to Tech
It's not surprising to see that the traditional videogame retailer's stock has fallen nearly 41% this year, so far. Its latest quarterly earnings have been hurt by supply chain issues unleashed by the pandemic.
The Grapevine, Texas company posted an adjusted net loss of $141 million, or $1.86 a share for the quarter ended January 29.
Sales rose 6% to $2.25 billion from $2.12 billion in the same period a year ago.
It now has plans to launch its nonfungible token or NFT marketplace by the end of the second quarter of fiscal 2022 as it hopes to transition into a tech company.
"We have learned from the mistakes of the past decade when GameStop failed to adapt to the future of gaming. It is important to stress that GameStop had become such a cyclical business and so capital starved that we have had to rebuild it from within," Chief Executive Matt Furlong said during the company's earnings call on March 17.
GameStop has entered into a partnership with Immutable X to support the development of its NFT marketplace and provide up to $150 million in IMX tokens, the company said.
No Takers Yet
But market watchers are hard pressed to come up with many drivers of revenue growth for the company.
Investment firm Wedbush said that GameStop is likely to see "limited success" in developing an NFT marketplace that is the preferred solution for gamers.
"Obstacles to success include walled gardens that exist around major players within the console publishing space and GameStop’s limited customer base of PC gamers," Wedbush Analyst Michael Pachter wrote in a note.
Pachter also added that GameStop's expanded product offering to PC [personal computer] games and accessories may not contribute more than $300 – $500 million in annual sales over the next few years.
"We do not believe that the category will comprise a sizeable portion of overall revenue," he added.
