GameStop stock plunged in 2022 and was trading at a fraction of its 52-week highs. To make things worse, consumers noticed that several GameStop stores have closed. Those two factors have led many skeptics to question whether GameStop is going out of business.
It has been over a year since the meme stock mania gripped Wall Street. GameStop and AMC were the two favorite names among WallStreetBets members. For possibly the first time in history, retail traders almost scripted the demise of a multi-billion dollar Wall Street hedge fund.
Could it be the end for GameStop? Is the company going out of business? Here's what we know.
Why did GameStop stock go down?
Speculative names, including meme stocks, have been out of favor with markets. There also seems to be a sense of disillusionment and disenchantment among retail investors holding meme stocks. These stocks required continued buying support from retail traders amid the lack of buying interest from institutional investors.
To make things worse, the Fed’s tightening has ended the easy money party that was among the key drivers of the rally in meme stocks. Also, since several high-quality growth names are now available at tempting valuations, investors have pivoted towards them instead of meme stocks like GameStop.
Finally, GameStop’s valuation was at unjustifiable levels at its peak. Markets got carried away with the business transformation under Ryan Cohen. While the company is working on the transformation, not many details are available on the business strategy.
The abridged earnings call for the last several quarters, where the company hasn’t been taking any analyst questions, hasn’t helped matters either regarding the information flow.
Why are GameStop stores closing?
GameStop has been working on a de-densification strategy. As part of that initiative, the company permanently closed 449 stores between October 2020 and October 2021. GameStop has been strengthening its e-commerce business and a large part of its sales are now online. The company has been trying to transfer customers from closed stores to nearby stores or online for shopping.
Is GameStop going out of business?
Gaming retail isn't as lucrative a business as it was a decade ago. Gaming has moved online and a lot of people have also been buying gadgets and gaming consoles online. Many bears use this argument to point out that GameStop will go out of business sooner or later.
However, the company realizes the tectonic shift in gaming and has been working on other business lines. Apart from gaming, GameStop is also expanding into selling other consumer electronics and has broadened its partnership with companies like LG, Asus, Samsung, and Logitech. The company has been trying to increase its total addressable market, which will eventually be reflected in its top line as well.
Is GameStop considering bankruptcy?
GameStop is now a debt-free company and had cash and cash equivalents of $1.4 billion at the end of October 2021. The company used the spike in its stock to raise cash, which has strengthened its balance sheet. Therefore, there is no sight of a bankruptcy filing in the near future for GameStop.
Does GameStop have a future?
GameStop has been hiring a lot of tech talent. It has also been looking to explore opportunities in NFT, blockchain, and Web 3.0 gaming. A few years from now, GameStop will be a different company than we have been used to seeing it over the years.
Can Cohen create another Chewy by transforming GameStop? It looks likely considering a loyal shareholder base and the focus on tech. To sum it up, while bears might be betting on GameStop's eventual demise, the company is transforming its business to position itself for the future.