GameStop’s share price will not help stores make more money.
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GameStop was great news because the stock price skyrocketed thanks to merchants on Reddit. The video game retailer’s stock price grew more than 14,300%, but has since dropped from $ 328 on Friday to $ 92 on Wednesday. Stock fans continue to maintain their GameStop stocks for stay with Wall Street and hedge funds, but make no mistake, the company is not doing so well.
GameStop’s share price doesn’t tell the whole story of the company. Indeed, one reason for his stratospheric gains is that so many institutional investors were betting that he would fail – to an absurd degree. This type of investment, known as short selling, has opened the door for individuals who have coordinated their online efforts to raise the price.
Stock prices, at some level, have always been disconnected from reality for the average American (just stack the 2020 stock market gains against the economic collapse fueled by the pandemic), but this GameStop roller coaster ride plays the whole logic. and basic investment principles through the window. For those in WallStreetBets subreddit, that is the question.
Lost in all the excitement is that GameStop continues to falter when it comes to all the metrics important to a company, with declining sales and the closing of 462 stores last year. Let’s take a look at how GameStop is doing like a real deal, and not just a target for some enthusiastic individual investors.
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What GameStop’s stock shot has to do with …
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How is GameStop really doing?
Not so good. According to its fiscal earnings report for the third quarter of December, GameStop’s sales were down 30% from the previous year. And that was during a pandemic, when the video game industry experienced months of revenue increase since the Americans stayed at home and played because of the blocks. But sales at retail stores suffered due to the closing of locations or the limited flow of customers as a result of those same blockages.
Meanwhile, digital game sales have reached new heights. Major publishers such as Sony, EA and Take-Two reported that digital purchases exceeded physical sales in 2020, according to Daniel Ahmad, an analyst at Niko Partners. Microsoft Game Pass, which allows players to access more than 100 games for $ 15 a month, reached 18 million subscribers, said CEO Satya Nadella on the company’s second quarter earnings conference call.
EA said 52% of sales of full console game units in the past 12 months were via digital download
For reference, Take Two says its proportion was 55% for the FY2020
Sony said 51% of all games sold on PS4 on the FY2020 were digital
In other words. We enter the next generation with digital> 50%
– Daniel Ahmad (@ZhugeEX) July 30, 2020
Cloud games it also grew in 2020. Microsoft’s XCloud and Nvidia’s Geforce now launched last year, following Google Stadia , which came out at the end of 2019. These services allow players to stream games without the need for physical copies of games or even consoles.
In September 2019, GameStop CEO George Sherman tried to get players back in stores by turning some test stores into meeting points for customers. But the company closed 462 stores in 2020, with plans to close more than 1,000 stores in total by March. It still has more than 5,000 stores in the United States.
How much is the company worth?
On December 1, GameStop’s stock price was $ 15.80, which gave it a market value of just over $ 1 billion. On Friday, the retailer’s stock was trading at $ 325 each, valuing the company at more than $ 22 billion. This placed it at number 464 on the Fortune 500 list, just behind video game publisher Activision Blizzard. The jump in stock prices has raised GameStop’s value compared to game publishers Ubisoft, Take-Two and Square Enix. Wednesday saw the stock rise slightly in price to $ 92.41, which raises the company’s market value to $ 6.4 billion.
Was GameStop leaving the market?
Although the retailer has struggled in recent years, it was not on the verge of death.
“In fact, I think they are in a good position to increase revenue and earnings again with the launch of the console,” said Wedbush analyst Michael Pachter. “Earnings like this support a price in the 20s or 20s.”
Pachter has GameStop shares at a target price of $ 16. Remember that this is only an analyst’s assessment.
The retailer has received some help in recent months thanks to the launch of the PlayStation 5 and Xbox Series consoles. Both are still in high demand and selling quickly whenever they are in stock. GameStop recorded $ 1.7 billion in sales last season. Online sales represented 34% of total year-end sales, an increase of 300% over the previous year.
GameStop said it will bring Matt Francis, an engineering leader at Amazon Web Service, to be the company’s first chief technology officer, according to a report by Marketwatch on Wednesday. He will oversee GameStop’s e-commerce operations when it starts on February 15th.
What is important to know is that GameStop’s inflated prices do not mean financial success. He still has problems that need to be solved.
Keep this in mind when deciding whether this is a roller coaster you would like to tackle.