GameStop Saga: Reddit to Leadership Change
The gaming industry is an appealing sector to keep an eye on. In the year 2020, customers in the United States have invested more than $57 billion in gaming materials and hardware. Compared to its previous year 2019, this is 27% higher. With the evolution that the industry has undergone, video games become one of the most common leisures globally. Most people in the United States spend an average of 6.76 hours a week playing video games. COVID-19 Pandemic that took over the world by storm since 2019 has resulted in social isolation and limited mobility. Thus, video games were used as tools to socialise with friends and to form new social ties. GameStop is an American gaming wares retailer based in Grapevine, Texas and is one of the world's most giant video games and electronics retailers. However, as the electronic retailers' world has expanded, GameStop has undergone many bumps as more prominent and more resilient electronics retailers exist. In the 3rd quarter of 2020, GameStop's net sales have dropped 30.5% or equivalent to $2.97 Trillion from its original position of $4.27 Trillion. This phenomenon is indeed the opposite of other retails who instead encountered an increase in revenues. For instance, mass retail store Target (TGT) experienced an increase in their Full-year revenue of $93.6 billion grew 19.8% compared with 2019. The decline of sales that GameStop experienced results in how the GameStop (GME) stocks are valued.
GameStop’s uproar was originally started by Keith Gill, a reddit user under the name "RDV" who found it unfair how GameStop is undervalued and deduced by large investors. He was immediately backed by other reddit users. Said large investors even made bets for billions of dollars that GameStop stocks would fall and it's quality will remain unredeemable. This of course triggered the uproar thus the mass buying of GameStop’s stock. On (1/21) GameStop shares (GME) opened at $41.55 and closed at $43.03 per share. The day after, GME surged 50% and closed at $65.01 per share. On (1/25) it opened at $96.73 and reached its peak on Wednesday (1/27) which surged 700% with the share price of $354 per share. As small investors championed by locking their purchases in retailer's stocks from viral posts online, the stocks rapidly rose in price and forced large investors to spend billions of dollars to cover for their losses. The manager of hedge fund Melvin Capital admitted on Wednesday (1/27) that the fund was letting go of its GameStop shorts. Reports said that the hedge fund lost 53% of its total investments in January. GameStop’s triumph didn't last long, the day after GME reached its peak (1/28), retail trading platforms including Robinhood and TD Ameritrade abruptly restricted most transactions involving GameStop stocks. The move sparked immediate backlash and also triggered an extremely volatile trading day that saw shares reach their intraday peak of $483 before plunging down to $112.25 by the time the markets closed.
The CEO of GameStop, George Sherman, joined the company in April 2019 when the GameStop (GME) stock price was only $8.77. During his tenure, George Sherman claims that his leadership stabilized the business amid the COVID-19 pandemic. However, after several months of sitting as the CEO, he closed 200 GameStop stores worldwide and kept increasing. Furthermore, this month, George Sherman has forfeited $98 million worth of stock because he did not meet performance targets. On Monday (4/19), GameStop has announced that George Sherman will be stepping down from his position after the annual meeting of shareholders scheduled on 9 June 2021 or even faster. Nevertheless, after his resignation announcement, the GameStop (GME) stock price rose by 6.3% to $164.51 from $154.69. Before this resignation event, the largest individual GameStop shareholders by 13% and the candidate of the new CEO of GameStop, Ryan Cohen, is ambitious to diversify the GameStop business model to an E-commerce enterprise capable of competing with large-scale retailers such as Walmart and Microsoft. As he mentioned earlier in a public letter to the board, "GameStop needs to evolve into a technology company that delights gamers and delivers exceptional digital experiences, not remain a video game retailer that over-prioritizes its physical presence and stumbles on the online ecosystem". He also endorsed the stock market plays and the 'redditors' initiative to do a massive buyout of GameStop (GME) stocks. Thus, the value of his stake is $825 million. However, due to this short-term massive buyout, it is impossible to predict how long this (GME) stock price remains high. All in all, GameStop's stock price could remain high due to the innovation to diversify the business idea that Ryan Cohen brings or vice versa due to the last three years performance of incurring losses.
Sources:
CNBC
CNN Indonesia
The New York Times
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