In January 2021, a group of retail traders from the Reddit page r/wallstreetbets had collectively sent the share price of GameStop (NYSE:GME) to all-time highs, causing hedge fund managers and institutional investors who shorted the stock to lose millions of dollars.
This article goes back in time and concludes the most important aspects of the GameStop Saga, explains the consequences and provides insights into recent earnings and the company's NFT-plans.
What Prompted The GME Buying Frenzy?
A month before the stock frenzy occurred, GameStop reported disappointing quarterly results for the third quarter of fiscal 2020. The earnings report sent GameStop's shares declining almost 20%. (#1)
A few weeks later, on January 11, 2021, GameStop announced the appointment of three new directors:
- Alan Attal,
- Ryan Cohen
- Jim Grube
Ryan Cohen co-founded the e-commerce company Chewy in 2011, where he served as the company's CEO until 2018. The announcement triggered the first discussions about the stock on the r/wallstreetbets subreddit and prompted an intense buying activity in GME, pushing shares over 50% higher. (#2)
January 19, 2021, Andrew Left, owner and founder of Citron Research, criticized the group of retail traders in its tweet, saying, "buyers at these levels are the suckers at this poker game."..."We understand short interest better than you...".
A few days later, more retail traders joined the buying frenzy, sending the GameStop shares surging over 50%. The GME stock continued to climb in the coming days, opening the trading session at as high as $96.73 per share on January 25, 2021.
Shortly afterward, Tesla founder and billionaire Elon Musk joined the so-called "Gamestonk" party by posting a link to the r/wallstreetbets page on Twitter. The tweet helped send GameStop stock skyrocketing by over 140% to open at an outstanding $354.83 a share on January 27, 2021.
The Consequences
Hedge funds that were shorting the GameStop stock at the time, including Citron Capital and Melvin Capital, announced they were closing their positions.
Furthermore, trading platforms such as Robinhood and TD Ameritrade restricted the trading of GameStop stock, causing an immediate backlash from retail traders who sent the stock to an all-time high of $483.00 (#3).
Following these developments, the U.S. Securities and Exchange Commission (SEC) weighed in at the end of January, stating it is "closely monitoring and evaluating the extreme price volatility of certain stocks' trading prices over the past several days.", not mentioning any stock, hedge fund, or trading platform by their names.
At the beginning of February, Treasury Secretary Janet Yellen said she would meet with regulators to discuss the GameStop saga and market volatility at the time. A few days later, shares of GameStop closed at just $53.33 a share. (#4)
The volatility continued, and the stock bounced back again to over $300 but never returned to its all-time-highs. (#5)
In April 2021, GameStop announced its former CEO, George Sherman, was stepping down after the brick and mortar retailer said it plans to pivot to e-commerce to compete with large-scale retailers and technology companies. (#6)
In October 2021, another GameStop executive resigned. Chief Operating Officer (COO) Jenna Owens stepped down from her role just a few months after she was appointed. (#7) Last year, GameStop replaced multiple executives as part of its plan to pivot toward eCommerce.
Recent And Upcoming Earnings
March 23, 2021, GameStop reported financial results for the fiscal fourth quarter, posting earnings per share (EPS) of $1.34, $0.01 short of the consensus estimates of $1.35. Revenue came in at $2.11 billion, below the analyst expectations of $2.21 billion. Comparable store sales rose 6.5% in the quarter, while net sales stood at $2.122 billion, compared to $2.194 billion in the FQ4 2019. Shares collapsed over 33% in response. (e1)
June 09, 2021, the company reported fiscal Q1 EPS of -$0.45, compared to the analyst estimates of -$0.83. Revenue for the first quarter was reported at $1.28 billion, above the analyst expectations of $1.16 billion. Shares fell 27% in response. (e2)
GameStop reported an adjusted EPS of -$0.76 September 8, 2021, for the fiscal second quarter compared to the expected -$0.66. Revenue for Q2 came in at $1.18 billion, versus the consensus of $1.12 billion. As a result, the GME stock reaction was mixed. (e3)
December 8, 2021, GameStop posted EPS for the fiscal third quarter, reporting -$1.39, compared to the consensus estimates of -$0.52. Revenue for Q3 stood at $1.3 billion, beating the analyst expectations of $1.19 billion. Shares fell 10% following this earnings report. (e4)
Shares lost nearly 50% of value since the last earnings report.
GameStop is now preparing to report earnings on Thursday, March 17, after market close. Analysts are looking for EPS of $0.84 on sales of $2.22 billion for the fiscal fourth quarter.
GameStop And Non Fungible Tokens
In addition to the beat quarter, GME bulls will also hope for guidance and positive commentary from the management. They will also seek more information and clarity about the company's non-fungible token (NFT) plans.
Earlier this year, the company launched a new business division to operate an NFT marketplace. GameStop hired more than 20 employees to establish an online platform where consumers can buy, sell, and trade NFTs and collectibles for video games.
When GameStop firstly announced its NFT intentions, the price gapped up significantly but lost nearly all gains until the market closed on January 7, 2022. However, the adoption of blockchain in the gaming industry continues to gain momentum as companies continue to release play-to-earn games, enabling players to exchange in-game assets as NFTs.
However, Wall Street analysts remain cautious on GME stock. Wedbush analyst Michael Pachter said earlier this week that the GME stock is "completely disconnected from the fundamentals of the business." His new $45.00 per share price target signals a near 50% downside from current levels.
Summary
The past has proven that both, retail traders and institutions, can be wrong with their assumptions about a "fair" stock price. So, now is the time for GameStop to set the right course for a profitable future, find new investors and gain credibility and trust.
Alexander Voigt is the Chief Executive Officer and founder of daytradingz.com. He does not hold any positions in the mentioned stocks.
