Jan 27, 2021
3 min read
What Happened to GameStop?
OVERVIEW
GameStop Corporation is a company based in the United States. The company operates over 5,500 stores where they sell products related to video games. They sell individual video games, video game merchandise, as well as hardware such as consoles and controllers. The company was founded in 1996.
Why You Should?
- GameStop will report its results during the holiday time in the next couple of weeks. This holiday quarter is the strongest that the company has every year. This is because video game products are in higher demand during this time as consumers decide to purchase these as gifts. This has benefited the company in the past and might continue to benefit the company in the future.
- GameStop might benefit off more stimulus checks. These stimulus checks offer people in the United States with more disposable income. People can then use this disposable income to purchase some video games and/or other products related to this sector. This will benefit the company and help the company’s recovery from this pandemic. This might also benefit investors in the company.
Why You Should Not?
- GameStop has been absolutely crushed by competition that offers similar products. Aside from small business competition, the company also needs to compete with retail giants like Amazon, Walmart, Target, and many others. Unlike Gamestop, these companies have significantly better e-commerce sites and offer cheaper products. This has hurt GameStop.
- The COVID-19 Pandemic has caused the demand for video games to soar. Unfortunately, GameStop has not been able to capitalize on this demand like other companies have. This is because of their weak e-commerce footprint and the dependency on in-store shopping. This has hurt the company’s results during this pandemic and might continue to hurt the company in the future.
- Last week, GameStop’s stock price soared due to an apparent short squeeze. Put simply, GameStop investors bought a ton of stock in order to “squeeze” short-sellers. This is an extremely short-term phenomenon and does not mean that the company is performing well. In fact, the stock price might fall significantly due to this event. This will hurt investors in the company.
- In my opinion, there are better retailers to invest in. GameStop might not be around much longer given the company’s past financial performance. If they are here to stay, they will need to make massive investments to stay afloat and turn the business around. I would go to companies like Walmart and Amazon with my investment capital.
- Due to the reasons mentioned above, the company has been reporting a drop in both profits and revenues over the past couple of financial years. This has hurt the company’s ability to make investments to position itself for the future of retail These dismal numbers have also hurt investors in the company. In the financial year of 2020, the company reported revenues of around 6.47 billion and a loss of around 470.9 million. In the financial year of 2019, the company reported higher revenues of around 8.29 billion but a larger loss of around 673 million.
MY OPINION
In my opinion, I would stay away from investing in GameStop. This is because of tough competition, impacts from the pandemic, an apparent short squeeze event, better investment opportunities, and falling revenues and profits. However, an upcoming holiday quarter report and more stimulus might aid the company’s short-term recovery.
