Here’s how GameStop went from dying retail relic to a ‘meme stock’ that has rattled the American stock market

OSTN Staff

gamestop
A customer with a Nintendo DS video game system in Los Angeles, November 21, 2004

  • GameStop may be the largest video-game retailer, but it’s a dying one, and it’s been that way for years.
  • The COVID-19 pandemic shot a much-needed jolt of life into GameStop as people sought at-home entertainment.
  • An online forum sent GameStop’s stock price through the roof, shaking up the US financial system in the process.
  • Visit Business Insider’s homepage for more stories.

Two years ago, GameStop was quickly deteriorating, ready to become a mere relic of the video game retail era.

The gaming retailer, the largest in the industry, began to flail within the past decade as game developers turned toward creating digital versions of their games. Customers went from camping outside stores to be the first to snag the new version of “Call of Duty” to downloading or streaming it online from their homes. 

Read more: Some GameStop store employees are getting investing questions from customers and they’re in the dark about how to handle it

Here’s how GameStop was merely a dying brand two years ago, found a temporary safety net during the pandemic in 2020, and has evolved into a full-blown “meme stock” that has sent earthquakes through the traditional American financial system. 

GameStop was at one point the go-to place to get your hands on the hottest new video games of the season.

gamestop
A Seattle customer with the New Super Mario Bros. 2 game in a GameStop store in 2012.

But like other brands that sold physical entertainment (remember Blockbuster?) GameStop started to see a drop in foot traffic and in sales. 

In September 2019, GameStop CFO Jim Bell announced the company was “on track to close between 180 and 200 underperforming stores globally by the end of this fiscal year.”

GameStop closed 462 more stores in 2020.

The video game industry at large was evolving to cater to new consumer demands, and gamers began to stream or download games online from their homes.

gamestop video games 32

GameStop was slow to catch up with the times, and it suffered.

In June 2018, GameStop announced that it was in “exploratory discussions” with potential buyers. Its share price slumped to around $4 and floated there for years.

Insider visited GameStop locations in New York City and in San Francisco in mid-2019 and saw how the company was unable to or unwilling to evolve.

The company posted dismal quarterly earnings in mid-2019 and also eliminated its quarterly cash dividend, meaning it couldn’t afford to pay shareholders what they were owed.

Read more: Microsoft’s Xbox deal with GameStop includes a revenue share agreement that gets the ailing retailer a foot in digital retail

Things were looking bleak for GameStop – until the COVID-19 pandemic emerged in March 2020.

gamestop store
A GameStop store in May 2020.

Suddenly, people were cut off from going to the office, the movies, concerts, restaurants, and other leisure activities.

And GameStop, long a straggler to the digital awakening of the video game world, saw a slight boost. its online sales surged over 1,500% between March 1 and April 10, 2020, according to a March report from Earnest Research in The New York Times. The spike coincided with the releasse of Nintendo’s uber-popular “Animal Crossing: New Horizons,” and the game and its console were available in stores, not on smartphones.

In July 2020, GameStop CEO George Sherman told Dallas Innovates that the company’s e-commerce sales spiked 519% in the first three months of 2020. Sherman also said GameStop leaned heavily on its feature that allowed customers to buy online and pick up curbside at physical retail locations.

In September 2020, Ryan Cohen – the cofounder and ex-CEO of online pet supply company Chewy – bought up nearly 12% of GameStop’s shares.

Ryan Cohen
Ryan Cohen.

Cohen also began pushing the company to focus more on e-commerce and unveiled a plan that would put GameStop head-to-head with Amazon. The plan specifically was to sell and ship a “wide range of merchandise.”

The prospect of GameStop morphing into an Amazon rival sent the gaming company’s share price up 28%.

On January 11, 2021, GameStop officially welcomed Cohen to its board of directors. And on the same day, members of the Reddit forum r/wallstreetbets banded together to collectively buy up GameStop shares. The subreddit had 2 million members at the time. It has since surged to more than 6 million. 

That large-scale buying sent GameStop’s share price to levels that it’s been unfamiliar with amid its years-long turmoil.

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A New York City GameStop location on January 28, 2020.

Its share price and market capitalization were around $340 and $23 billion, respectively, at one point, putting the company on par with large corporations that actually make money as Insider’s Josh Barro wrote. That value is not likely to hold.

As the shares have soared, investors have jumped in to short GameStop’s stock, meaning they were selling it with the hopes that it will decline to pocket the difference. That didn’t happen, and these short-sellers have lost billions.

Read more: How hedge funds are tracking Reddit posts to protect their portfolios after the Wall Street Bets crowd helped tank Melvin Capital’s short positions

There are four main reasons why GameStop stock was targeted, which Insider’s Ben Gilbert and Allana Akhtar laid out, and the whole ordeal involves a slew of factors: Wall Street greed, financial instability, and the astonishing power of the internet’s collective will. GameStop has been called a “meme stock,” internet speak for a stock that was heavily influenced by people online.

At the end of the day, the Reddit-bred gaggle of day-traders may have thrust GameStop back into the public eye with its stock market stunt. But the company is still fighting the same fight it’s been facing: adapting to a changing video game industry that it had long dominated. 

Read the original article on Business Insider

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