So About GameStop…

GameStop has been on death’s door for a while. Due to a surge in digital game sales amongst other shifts within the gaming industry, the retail chain has needed to cut jobs and close stores to minimize losses. Even as new executives joined the board with the intention of turning the situation around, it appeared to be only a matter of time before it will be confined to our memories.

But if you looked at the stock market, you might think that GameStop struck it rich in Las Vegas.

Within the span of a week, GameStop has dominated the entire market with astronomical gains prompted by an intense feud between hedge fund short sellers and Reddit users on r/wallstreetbets. For the purpose of this blog, I do not want to go too deep into the specifics, but I will link a Polygon article that explains the situation in more detail. After all, this story might hold significant implications for the entire financial system going forward. Rather, I want to keep expectations in check regarding the state of the brick-and-mortar chain.

Let us make one thing clear: this stock surge is not reflective of GameStop’s current state. Theoretically, another stock could have undergone the same experience had the spotlight been placed on it (and as of writing it looks like AMC Theaters is next). As mentioned at the top of the post, GameStop laid off hundreds of employees and closed many stores that others might have witnessed unfold in their local areas. Their website has undergone a major overhaul in the past year that looks much cleaner, and the retailer is engaging in larger efforts to sell games and stay afloat. Purchasing a PowerUp Rewards membership now gives you a $5 monthly credit to encourage repeat returns throughout the year. Deeper discounts incentivize pre-owned purchases while towing the line of selling new software.

Not to mention, GameStop has several strategic negotiations with big companies like Microsoft to expand its offerings across digital storefronts. Chewy founder CEO Ryan Cohen acquired a stake in GameStop with the intention of adapting the company for a new generation of gaming, and former Nintendo of America president Reggie Fils-Aimé jumped on the executive board after his retirement.

All of this to affirm that GameStop is attempting to adapt its operations moving forward. Looking back at the stock situation, one could argue that it was undervalued when it was in the measly $3-$5 price range. By extension, that implies that the company’s potential is also underestimated. While digital games are the inevitable future, GameStop maintains some wiggle room. The Playstation 5 and Xbox Series X still offer consoles with discs (with good reason to believe they remain the preferred option). Discs will continue to be sold, and there is a genuine chance GameStop could emerge as a leader if it manages to increase its profile amidst the competition of Amazon and Walmart amongst others. The most defining feature of GameStop’s business model is used game sales. Within a phase where console gaming is becoming more expensive across the board, more people might be willing to purchase cheaper games with the compromise that it has been in someone else’s possession.

Ultimately, the spotlight is completely on GameStop. How the company chooses to utilize this resurgence of attention will hold great importance for is future. Despite the impact of COVID-19, it has weathered out some of the storm with a fresh set of gaming consoles and heightened interest in video games as a whole. Its hand has been forced, but the immediate future is in their control.

In the meantime, perhaps GameStop’s trade-in values will rise alongside this stock surge? 🙂

Thank you for reading! This is a loaded topic, but it will inspire much discussion throughout the rest of the month and into February. Please feel free to leave your thoughts about anything GameStop-related!

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