Tag Archives: Video games

Hedge Fund Loses Half Its Value on GameStop Trades

Melvin Capital, the hedge fund that dug itself into a hole during the GameStop saga, extended its first-quarter losses to 49%.

The firm, founded by portfolio manager Gabe Plotkin, saw a 53% decline in January, reversed some of that loss by gaining 22% in February, but slid another 7% in March, Insider’s Bradley Saacks reported on Friday.

More here.

The GameStop mania has come with incredible trading volume and rapid price moves. Collectively, hedge funds have taken losses of over $1 billion a day at certain points:

To put the gravity of the situation into perspective, on 27 January at the height of the GameStop saga, 24 billion shares were traded on US exchanges, surpassing the previously set record by 4 billion shares traded in the 2008 global financial crisis.

According to data and analytics firm S3 Partners, by 27 January short sellers had accumulated losses of more than $5 billion in 2021, including a loss of $1.6 billion on the 22 January and $917 million on 25 January.

Hedge funds seemed to have largely abandoned their positions. The percentage of GameStop stock sold short is down to 26% from over 100%. In January, it was hard to even borrow the stock at all to sell it short. Now, that’s cheap and easy to do, if you dare:

…a quick check with my broker verified that GME shares are available to borrow at 0.5% borrow rate, indicating that they are likely not in scarce supply

I expect hedge funds to pull back from shorting numerous stocks popular on Reddit, such as Palantir, AMC, etc. Losses like that may be too painful to take, no matter how good the fundamental case against those companies may be.

For more on GameStop, check out these posts:

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

Photo: “Retail GameStop” by ccPixs.com is licensed under CC BY 2.0

GameStop To Dump CEO

GameStop plans to fire its CEO, Reuters reports:

GameStop Corp is looking for a new chief executive to replace George Sherman as it pivots from a brick-and-mortar video game retailer to an e-commerce firm, three people familiar with the matter said on Monday.

It would be the biggest shakeup at GameStop since Ryan Cohen, the co-founder and former chief executive of online pet food company Chewy Inc, joined its board in January and began laying the groundwork for a shift in culture and strategy, people familiar with his work at GameStop said.

Numerous top executives have already left, likely under pressure from Cohen:

The CEO replacement is the latest in a string of changes pursued by Cohen since he joined GameStop’s board.

Former Chief Financial Officer Jim Bell and Chief Customer Officer Frank Hamlin are among the senior executives who have left the company in recent weeks.

Cohen has brought in executives from Chewy and Amazon. But Chewy and Amazon still sell physical goods, albeit online. Video games are becoming increasingly digital, leaving GameStop with no item to ship to you. Perhaps GameStop could process those digital transactions, but I don’t see why the game publishers wouldn’t just do that themselves and keep 100% of the revenue.

This leaves them with consoles, primarily. But new consoles only come out every 5-7 years, not enough to sustain a brick and mortar business with 5,000 stores.

No matter who he brings in, Cohen faces an uphill battle. The video game industry has simply changed in ways that make it difficult for a company like GameStop to survive.

For more on GameStop, check out these post:

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

Photo: “Ryan-Cohen” by bill.jerome is licensed under CC BY-SA 2.0

Has GameStop’s Business Peaked?

GameStop’s 2020 results, released this week, were disappointing, with losses over $200 million last year.

These weak results may be the best GameStop is likely to do for some time. The reason is something called the “video game console cycle.”

Video game consoles are a huge part of GameStop’s business, especially with the games themselves increasingly moving to digital downloads. New consoles sell like crazy when they’re first released. Gamers line up outside stores, sometimes even overnight, eager to get their hands on the latest tech.

And then…the enthusiasm fades. Sales of the console drop, and another doesn’t come out for 4-7 years. The lines outside GameStop disappear, and business gets tougher.

There are three major video game console makers: Microsoft, Sony and Nintendo. Microsoft and Sony just released new consoles in November 2020, right in time for the Christmas rush. Nintendo’s latest console came out in 2017, and they may have a new one ready within a few months.

Where does that leave GameStop in the later months of 2021 and in the next several years? All the major companies will have recently introduced new consoles, and their sales will have started to drop off. Physical game sales are likely to continue to be supplanted by digital downloads. And whatever rent abatement they were able to get from landlords due to COVID will have likely ended.

This could lead GameStop to much bigger losses in the future. Indeed, before COVID, losses were significantly larger, coming in at $500 million and $700 million for 2019 and 2018 respectively.

If Chewy founder Ryan Cohen and the team he’s putting in place can turn GameStop into a viable e-commerce business quickly, they may escape this fate. But they have 5,000 stores with long term leases and limited cash reserves to fund this transition.

Investors may be expecting a brighter future for GameStop with Mr. Cohen’s changes and the end of COVID, but I suspect the mediocre results we saw in 2020 may be a best case scenario.

For more on GameStop, check out these posts:

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

Photo: “Retail GameStop” by ccPixs.com is licensed under CC BY 2.0

GameStop Has Failed to Modernize Before. This Is What Happened.

Many investors are excited about Chewy founder Ryan Cohen joining the GameStop Corp. board and helping the company transition to e-commerce. But what isn’t as widely known is that GameStop has tried this before, with abysmal results:

Wall Street and short sellers placed heavy bets against GameStop because of strategic missteps. The company, at one point, latched onto game downloads as well as another trend now gaining momentum known as cloud gaming, or the Netflix-like streaming of games. But products gained with two acquisitions made in 2011 of companies specializing in those areas were abandoned after about two years.

“A lot of the initiatives that we had brought to the table and invested in just died on the vine,” said Chris Petrovic, who joined GameStop in 2009 to spearhead the retailer’s digital ventures, in an interview this month.

The article is referring to the acquisitions of Impulse and Spawn Labs. GameStop bought them just one month a part in 2011. Impulse was a system to digitally download games, and Spawn Labs allowed people to stream games.

But rather than seize the future with these two acquisitions, GameStop wound up shuttering both within just 3 years. It replaced Impulse with its own download software and shut down Spawn Labs claiming that the customer wasn’t yet ready for cloud-based gaming.

How many millions of investor dollars did GameStop pay to buy these companies, only to shut them down shortly therafter? They also bought mobile phone retailer Spring Mobile to try to get into smartphones. That business drastically underperformed and GameStop sold it a few years later, having little but debt to show for it.

In all, each time GameStop has tried to reinvent itself, it has quickly failed and abandoned the program. Will this change under Mr. Cohen’s leadership? Perhaps. But I wouldn’t want to bet $195 a share on it.

For more on GameStop, check out these posts:

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

Photo: “GameStop” by JeepersMedia is licensed under CC BY 2.0

Video Game Sales Going Digital Could Make GameStop a Dinosaur

I came across an incredible stat on the video game industry this morning. In just nine years, it’s gone from almost entirely physical to almost 100% digital:

Physical video game sales from computers & consoles have made a dramatic shift since 2009. In 2009 physical sales still accounted for 80% of the market and decreased to 17% a decade later in 2018. Video game consoles such as Xbox come with a 512GB or 1TB drive in addition to an optical drive. Profits and efficiency will continue to drive this market and I believe physical games will be a thing of the past. This presents a huge problem for GME over the next decade. Eventually the new consoles will come without an optical drive and the older systems will lose most of their allure causing the secondary market to dry up. Without the secondary market for games to trade and sell their used games GME will lose foot traffic in addition to a large business segment.

GameStop Corp. relies on secondhand game sales for a substantial portion of its business. There are no secondhand sales of digitally downloaded video games.

GameStop also has 5,000 physical stores that have little purpose in a world where almost all games are sold via digital download. And they’re locked into those leases for years, in many cases. This will drain capital and attention from their ambition to become an e-commerce leader.

In all, the industry has passed GameStop by and companies like Microsoft or other game publishers are in a much better position to benefit from these changes.

For more on GameStop, check out these posts:

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

Photo: “Dinosaur” by shvmoz is licensed under CC BY-SA 2.0

Is GameStop the Next Blockbuster?

I came across an interesting article today. It drew a parallel between a dominant brick and mortar retailer of entertainment of today, GameStop, and one of yesteryear: Blockbuster:

It’s 100% obvious that over time all game software is going to be downloaded. This is the same or worse than with movies. Already, 100% of the game content on smartphones is downloaded, and the same will quickly happen to consoles and to PCs. It’s just more convenient to download something that’s 100% digital versus going out to a store to buy it.

It’s also nearly 100% obvious that the digital content channel will be controlled by specific parties. There are Apple (AAPL) and Google (GOOG) (NASDAQ:GOOGL) when it comes to smartphones, through the Apple Store and Google Play. There are the console makers when it comes to consoles. And then only in PC gaming is there something of an open market, where for now Steam is the leader, with individual publishers and Microsoft also trying to be in the running.

Given the above, GameStop’s slide into oblivion selling gaming software is a near certainty, much like Blockbuster’s was. Gaming hardware is generally amenable to being sold online (standardized, bought on price), too, and is lower margin than software. Used game trading ends with digital sales.

Hence, GameStop has this permabearish thesis on it, and this thesis is real. Even before COVID-19 hit, GameStop already was reporting near 30% declines in revenues.

More here.

So online, GameStop leads in no part of the market. One area where they do lead, re-sale of used games, is probably going away because the games will be 100% digital. Ouch.

If they want to muscle their way into the online market, they’ll have to contend with giants like Microsoft, Tencent, and Apple that can crush them for a tiny fraction of their massive profits.

Their e-commerce business is growing rapidly, but it’s hard to imagine such a financially strapped and marginal company taking on so many wealthy and digitally native competitors.

What’s more, I would expect Amazon and Netflix to make major pushes in this area to compete with Google and Apple. Both are big players in entertainment and are unlikely to neglect the vast video game market.

For more on GameStop, check out these posts:

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

Photo: “Blockbuster Closing Store Front Sign Taken Down” by Dave Dugdale is licensed under CC BY-SA 2.0