GameStop Explainer – Here’s What You Should Know

GameStop has been all over the place these past weeks. Its stock rose to ever high. The price was up over 1600 percent in January. But what is GameStop? And why is it gaining so much attention all of a sudden?

What happened?

(Source: Unsplash)

As the year 2021 embarked, things developed and escalated quickly for GameStop. The stock price of the troubled company surged with independent investors starting bets on Reddit, pressuring Wall Street hedge funds. As these funds had made assumptions about the company’s share price would fall. The stock escalated ever fast since then.

  • January 11, 2021: Short-seller Andrew Left -Citron Research’s editor, predicted GameStop’s stock price will fall back to US$20 a share. The claim had called out public attention and attacks for the online investors. With the help of social media, the WallStreetBets traders pushed the stock price of GameStop to an all-time high.
    • GameStop closed at US$43.03 then.
  • January 26th, 2021: Citadel and Point 72, asset management companies, invested US$2.75 million in hedge fund Melvin Capital Management as an emergency influx of cash intending to stabilize the Melvin Capital. 
    • GameStop closed at US$147.98.
  • January 27th, 2021: Andrew Left revealed that his company had covered most of its GameStop short at a 100% loss. GameStop’s frenzied activity had stopped the company from trading on the New York Stock Exchange. On the same day, social media platform, Discord, also banned WallStreetBet’s server. 
    • GameStop closed at US$347.51.
  • January 29th, 2021: Robinhood, a US trading platform, and Futubull also banned users from trading GameStop. 
    • The company closed at US$193.6.
  • February 2nd, 2021: GameStop resumed trading on the New York Exchange after being briefly halted. It plunged as traders dumped the stock. 
    • GameStop closed at US$90.

What’s GameStop?

(Source: “GameStop” by Moe_ is licensed under CC BY 2.0)

Established in 1984, GameStop is an American brick and mortar retailer. It produces video games, merchandise, and entertainment products. The company provided a place for millions of young people to trade in used games. It was also the place to discuss different franchises and seek advice from GameStop’s staff. In the 2000s, the company had thousands of stores around the world with its successful framework. GameStop’s stock once went up more than doubled in 2007.

In terms of the portfolio of GameStop, the retailer’s revenue originates from hardware and accessories, software, and collectibles. Based on figures for 2019, its key sources of revenue had been continuously declining. Most of its profits came from the United States (69.9%), followed by Europe (17%), Australia (8.1%), and Canada (5.3%).

(Source: Extracted from GameStop 2019 Annual Report)

The well-established name, like many retailers, has been struggling. With the changing dynamics of the gaming industry, people opt for online purchases rather than physically visit stores. Slowly losing its place, GameStop remained inefficient in adapting to the changes. Wherein comparison, its competitors such as Nintendo and Microsoft have come up with new software – Switch and Xbox respectively, winning the hearts of many. 

Fortunately, GameStop still has its supporters. In August 2020, Ryan Cohen – the founder of bought a 9% stake in GameStop. Cohen was the owner of an online pet store. In November 2020, Cohen outlined a plan on further developing online services to revive the company’s business. In December 2020, it has been announced that they are closing 1000 of its physical stores. By then the retailer closed at US$16.94.

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