While GameStop’s turnaround plan is focused on digital distribution and interactive experiences, it’s not impossible for the company to go the way of Blockbuster. The company once wrote itself off as another brick and mortar chain. The plan calls for returning to profitability by Q4 of this year. However, investors should not get carried away with the idea of GameStop going the way of Blockbuster.
The video game industry is moving online. Although Blockbuster’s revenues were at an all-time high in 2019, the company’s business model is losing ground to online games. Although GameStop’s brick-and-mortar stores still sell physical discs, the industry is shifting away from traditional retail and towards downloading. The company’s stock price has dropped since the hedge fund concerns emerged, but there is still a way for it to stay in business.
The recent appointment of Cohen by the Justice Department may be a triggering event. Hedge funds have already been shorting GameStop stock, and this has hurt their position. The news has also affected the stock price of other heavily shorted stocks. In a downturn, hedge funds can make a lot of money shorting companies, and GameStop is no different. If it does go the way of Blockbuster, then GameStop’s stock price should also rise.
The GameStop saga has captured the attention of Wall Street and armchair investors, Reddit pundits, and the US Congress. It has exposed the financial system as rigged. The documentary opens with striking shots of Wall Street decked with American flags. But it stops short of answering the big questions. In fact, it’s a good thing – if GameStop goes the way of Blockbuster, it’ll be a much better place than it was before.
In recent weeks, the stock price of GameStop has shot up. The stock market took notice of this and increased by more than 50% in one month. Many investors have remained cautious and bought GameStop stock in anticipation of its long-term turnaround. The stock has risen from $10 per share in October to $39 a few days after Cohen’s appointment. Those investors are betting that GameStop will go the way of Blockbuster.
While GameStop’s same-store sales have been down in the past year, they’re expected to recover this year. In addition to this, its digital business is growing steadily, with a 69% jump in revenue in the second quarter. Analysts estimate that GameStop will generate $500 million in digital revenue this year. The digital segment contributed 50 basis points to the company’s gross margins. As a result, GameStop’s digital business will reach $1.5 billion in 2014 and it’s projected to be 20% of sales.
Several hedge funds jumped in on the news that GameStop may be facing bankruptcy. The short-selling hedge funds, meanwhile, rushed to buy back shares at higher prices. As a result, Wall Street’s rich lost millions of dollars. Meanwhile, the powers-that-be halted their investment in the company to protect the hedge fund rich. And GameStop’s stock rose another hundred percent on Friday.