Hey Jesstock traders
If you're ever short on entertainment, if you think there's nothing to watch on TV or new movies, then I suggest you take a look at what's going on in the stock market, it's becoming quite the entertaining mess of fraud, arrogance, ignorance and mistaking leverage for genius and is fully in Uroboros territory.
Gamestop for people like me who don't live in the US is a brick and mortar retailer that specialises in selling gaming products from consoles to games. As a retailer of a niche product, regardless of how big your market is, is always going to be a tough sell with online continuing to gobble up market share.
What is Gamestop?
Gamestop has to have a website compete with online retailers, it has to have physical stores with staff, it has to hold stock, make deals with suppliers and then run this entire business on the small margins offered by hardware providers and gaming publishers.
Gamestop's actual big margin play is second-hand gaming, where they can buy in stock from gamers who aren't really priced sensitive to what they get and then resell it to other consumers. A business that is also getting margin taken away from classified sites, social media groups and digital sales.
Gamestop going the way of Blockbuster
As the internet becomes faster and cheaper to use and cloud storage aims to disrupt more industries the world digital sales are increasing and in doing so killing old business models. The same way we now Netflix instead of hiring a DVD or Blu-ray, and see this as normal, is the game way gaming is going.
Gamers are now either streaming games or downloading their digital version directly from publishers, getting instant access and getting it cheaper than ever before.
So you can see why physical games are taking a knock, yes there will always be people who want to buy the package get the in-game items and codes and the smell of opening up a new game, making unboxing videos or stacking a selection of new games on their shelf, but this crowd is not big enough to keep a business growing.
This video will give you a good summary of Gamestop and its business model
Poor fundamentals
As mentioned earlier game stop is a dying business model and short-sellers are predicting its eventual downfall. The problem with short selling is you can be correct, but you can also be too early and not have the liquidity to hold your position for long enough.
If we look at a business that is currently running at a loss according to financial data from Yahoo Finance. It's not a huge loss by any means, at under a million bucks a year but this isn't some startup. This is a mature business that launched in 1999 so 22 years of equity and it IPO'd in 2002 so its been in the public market for some time now.
If it wasn't able to grow since then and even under lockdowns and the launch of the new Xbox and PS5 then it's really not going to get any better for this business.
Short-sellers have done their research and clearly see this stock is overpriced for what the company does or the zero cash flow it provides investors with so its time to call BS.
The crazy story of Gamestop
Stocks don't reflect reality
Since the fed is backstopping the stock market retail trades have poured in and choose stocks based on brand and, not fundamentals. Many of these young traders are gamers and believe that Gamestop has a future. These traders have pumped the stock to an all-time high of $159,18 crushing short sellers in the process.
Margin calls have seen losses of over $1.6 billion in a day and a total of $6 billion in losses for short-sellers.
There is profit in instability
Markets are now in lala land and anything goes in the Casino, traders may be celebrating their paper gains now, but the problem is once they clean out all the short sellers there will be no one left to buy the stock. Once buying pressure dies down and stockholders want to take profits, there is no floor on game stop.
Since there is no income from dividends, no value investor is going to come at any price to try and save this stock. These non-sensical trades my have stopped out and bankrupted short-sellers, but now it's going to bankrupt the longs too.
I think GameStop will be one of many reports of this kind of behaviour as long as the stock market is backstopped by money printing. It's absolutely fascinating to see how the moral hazard of money printing suckers in investors and the misallocation of capital is insane.
Have your say
What do you good people of HIVE think?
So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."
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