WallStreetBets or Ryan Cohen: Who Saved GameStop?
GameStop is now a debt-free company with reasonably sound financials. Did WallStreetBets or Ryan Cohen save GameStop? Here's what we know.
March 15 2022, Published 9:56 a.m. ET
While GameStop stock trades at a fraction of its 2021 highs, it has witnessed a turnaround. From a debt-laden company with falling revenues, GameStop is now a debt-free company with reasonably sound financials. Did Reddit group WallStreetBets or Ryan Cohen save GameStop?
The short squeeze in GameStop stock will go down in history as one of the epic trades of all time. From Elon Musk to Chamath Palihapitiya, everyone supported retail traders as they took on Wall Street hedge funds. It isn't often that we hear about retail traders triggering a short squeeze and almost bankrupting a major hedge fund.
Short squeezes don’t last, but GameStop stock did.
A short squeeze is a short-term phenomenon. Those who are short are left scrambling to arrange for the securities. This leads to a short-term buying spree and the resultant rise in stock prices. However, things were different in the Reddit short squeeze frenzy.
Meme companies went on a share-selling spree to capitalize on the Reddit mania. For example, Sundial Growers, a struggling debt-laden cannabis company, not only turned net debt positive but also started to lend to and invest in other cannabis companies. Sundial Growers even announced a share buyback after its stock price crashed.
Did WallStreetBets save GameStop?
GameStop’s problem was two-fold. First, its sales have been gradually coming down as gaming continues to move online. The business is facing structural headwinds from the digital transformation even though console sales are still strong.
The second issue facing GameStop was its debt pile. However, like fellow meme names, it also capitalized on the Reddit frenzy to raise cash by selling shares. GameStop is now a debt-free company and has ample cash to invest in the new ventures.
The stock sale was made possible by the short squeeze which was triggered by WallStreetBets members. So, in a way, WallStreetBets did help bail out GameStop by enabling it to repay its debt.
Ryan Cohen also deserves some credit for saving GameStop.
Meanwhile, deleveraging is only one part of GameStop’s restructuring story. The second part is the business transformation is being pushed by activist investor Ryan Cohen, who also became the company’s chairman in 2021.
GameStop has been pivoting from a brick-and-mortar retail company to an e-commerce company. It has been gradually shutting stores and has been focusing on online sales. The company is also working to increase its target market and is entering into emerging industries like NFT.
These changes would lead to a structural reduction in GameStop's fixed cost base while increasing revenue opportunities. So far, we don’t have a lot of details about the business transformation. The company provided a broad outlay but the granularity is missing. Management hasn’t even been taking questions from analysts during the last few earnings calls.
GameStop’s loyal stockholder base also helps.
GameStop, like AMC Entertainment, has a loyal retail shareholder base. The company has been directly connecting with retail investors, a lot of whom are WallStreetBets members. A loyal shareholder base also helps the company because institutional investors would have otherwise sought much more information than GameStop has provided.
WallStreetBets did play an important role in saving GameStop. However, the company’s turnaround is multi-dimensional and there are several other actors at play in reviving the gaming retailer.