In early 2021, the scandal around GameStop, an American video game retailer whose shares soared overnight, shocked even those who had nothing to do with the stock market and gaming. The story of GameStop’s meteoric rise was discussed all over the world, and analysts predicted that this case would go down in history of the US stock market. Want to learn more? Then read about the unprecedented case that happened on Wall Street and its outcome for the price of the GameStop shares.
About GameStop
GameStop Corp. is a major omni-channel video game retailer based in the US. The company specializes in offline and online sales of video games and gaming software in the US, Canada, Australia, and Europe. In addition, GameStop stores sell new and used gaming hardware and accessories. Among the most popular products of the company are controllers, memory cards, network point cards (in-game digital currency), and disks with games and movies.
The retailer also offers collectibles such as licensed merchandise related to video games, television and movie industries. What is more, GameStop owns and publishes a magazine devoted to video games – Game Informer.
The famous gaming corporation traces its roots to Babbage’s, a software retailer founded in 1984 in Dallas (Texas, US). Later in 2000, GameStop was established as a result of numerous mergers with other companies.
In spring 2014, the company extended the scope of its services and added related goods, including smartphones and tablets.
A few months later, GameStop announced a partnership with game developers which aimed to create exclusive DLC* that would empower users to download additional content such as new story missions.
Currently, the video game giant operates more than 6,000 stores in the US and 17 other countries worldwide. The company is headquartered in Grapevine, Texas, with more than 14,000 people employed.
Today, GameStop is a retailer with billions of dollars in revenue. However, its performance has considerably decreased over the past two years due to the COVID-19 pandemic, so that the sales plunged by 40%.
*DLC is additional downloadable content for video games.
Global digitalization also has a negative impact on GameStop's revenue, with fewer people buying video games and films in physical format. Besides, such tech giants as Microsoft tend to produce consoles without a disc drive.
What happened?
Despite its long operating history, GameStop came under the media spotlight in January 2021.
Back then, a group of amateur traders beat large funds of Wall Street with the help of the online forum Reddit. As the result of this experiment, the shares of GameStop skyrocketed to record highs, while hedge funds* lost over $3 billion. Now let’s look into the story in more detail.
The shares of the retailer showed a slight increase already in late 2020 when Reddit users accused large hedge funds of short-selling the company’s stock. As the shares were heavily shorted, Reddit traders claimed that investment funds were doing this to bankrupt the company. Then, an army of forum enthusiasts launched a coordinated buying spree of GameStop shares and called on other traders to punish large hedge funds.
In response to this, hedge funds increased their short positions, hoping that investors would soon sell the company's stock and its value would decline. But retail investors were not going to give up that easily and were soon supported by professional traders who went long on the stock.
In early January 2021, Ryan Cohen, who recently joined the board of directors, announced the digital transformation of the GameStop company, thus sparking a new rally in its shares.
A few days later, Citron Research founder Andrew Left criticized the explosive rise of the GameStop stock, saying that its fair price was no more than $20 per share. His words provoked a backlash among investors, so they initiated another rally by January 21.
By January 27, GameStop shares doubled in value on Elon Musk’s tweet consisting of just one word – “Gamestonk!!” This was a reference to the popular Stonks* meme.
This is how the securities of the video game retailer soared by more than 1,000% in less than a few months. In December 2020, the stocks were traded at $15 per share, but on January 28, 2021, their value jumped to $480. So, the price skyrocketed by as much as 3,100%!
As for the hedge funds, they have learned a hard lesson. Large funds failed to outplay Reddit amateurs as they did not take into account the support that came from professional investors with large holdings of GameStop securities from Europe, Asia, Canada, and other countries.
Thus, the hedge funds that were betting against GameStop lost more than $3.3 billion in a battle against Reddit users.
*A hedge fund is a private investment fund.
*Short-selling means opening short positions that will allow traders to profit from a fall in the asset value.
*The Stonks meme is a humorous meme picture that usually refers to naive investors who hope to reap profits without any knowledge of the market.
GameStop today
GameStop was first listed on the stock exchange (IPO) in 2002 in the retail sales sector. The stock was traded at the initial price of $18 per share.
Today, the shares of the American offline retailer GameStop are traded on the NYSE with the GME ticker* symbol.
You can buy the shares of GameStop on the US and European stock exchanges. For this, you need to open a trading account with a broker, which can be done in a matter of minutes. You will only need 3 minutes to open an account with InstaForex.
The minimum trade size is 1 lot which is equal to 1 GameStop stock. To calculate your profit, use Trader’s calculator on InstaForex website.
After that, you can easily trade the shares of GameStop or other popular companies. The MT4 trading platform by InstaForex, which is favored by all traders worldwide, will become an ideal tool for assisting you in trading. By the way, the platform offers a one-click trading option.
To develop a profitable trading strategy, beginners need to get basic online training and grasp the key concept of market analysis. InstaForex has created a special Training course for beginners. It will give you an insight into the principles and secrets of successful trading in the global financial markets.
Dividend payout policy
GameStop Corp. pays dividends on an annual basis. The last dividend payment took place in March 2019 when the company paid its shareholders $0.38 per share. The annual dividend yield amounted to 3.47 %.
That is, the major profit for investors who have GameStop’s stock in their portfolios comes from trading on price changes, both ups and downs. This fact makes the shares of this issuer far less attractive to investors and less volatile at the same time.
Find out about the latest changes in the company’s dividend policy and market operations in the Forex Analysis and Reviews section on the InstaForex website.
Conclusion
At the moment, there are two opposing views on how the company’s financial performance will develop in the future. Some experts predict a gloomy outcome for GameStop, saying that this kind of business will become unprofitable in the next few years. Others are sure that GME stock may reach $432 by the end of 2022.
However, it is up to you to decide. If after reading this article you consider investing in GameStop and becoming part of the company, go to InstaForex website and open a trading account in just a few clicks.
Back to articles
