GameStop (NYSE: GME) stock surged by more than 140 percent on Monday with each share amounting to $143.89 each, hitting a major high for the company. By Tuesday morning, its stock rose by another 16 percent. It also grew by more than 300 percent in the month of January alone.
But the big question that everyone is wondering is: Why?
On January 12, GameStop announced that Ryan Cohen, co-founder of the online pet food and products retailer Chewy, would join its Board of Directors. In a letter to the board written in November last year, Cohen discussed reasons behind the potential downfall of GameStop, and that there is hope for the company to still be “the ultimate destination for gamers.”
“Although GameStop’s e-commerce sales have increased significantly during the pandemic, annual revenues have declined by a staggering margin over time,” Cohen said. “The next console cycle’s temporary sales bump is not a justification for complacency and glacial transformation.”
With this, the company came to an agreement to start focusing on squeezing short-sellers and on digital sales instead of being a “videogame retailer that overprioritizes its brick-and-mortar footprint and stumbles around the online ecosystem.”
Following the agreement, short-seller Citron Research’s managing partner Andrew Left posted a YouTube video on why he believes that GameStop stock will soon return to $20 a share. This comment did not sit well with members of the subreddit community, WallStreetBets, as they all praised Cohen’s letter.
Once this news came about, members began buying GameStop shares for cheap amounts. Calling them an “angry mob,” Left announced that he would no longer comment on GameStop stock for safety reasons.
It’s Been a Bit Hard for GameStop
In 2020, the video game retailer saw in-store business decline as the Coronavirus pandemic made way throughout the world. As people stayed inside, you’d think that there would be a want to play video games to pass the time. Right?
Even before COVID-19 put a pause on life, GameStop began to see a decline in customers and sales. The company has its brick-and-mortar stores, allowing customers to buy, sell and trade new and pre-owned games and consoles.
When the pandemic hit, those who wanted new video games turned to downloading them directly onto their consoles; rather than going out and buying physical copies, this made it easier and faster to start gaming than ever before. Companies like Microsoft have also dominated the gaming industry in recent months with subscription services like Xbox Game Pass, which allows users to gain access to hundreds of games for a low monthly subscription price.
However, it hasn’t been all bad for the GameStop. According to CNBC, GameStop still saw an 800 percent growth from 2019 in its online sales during Q2 2020.
With the new agreement and partnership with Cohen, GameStop will hopefully be able to thrive once again as a leader in the video game industry.
