GameStop share price skyrockets 83% in a fortnight

GameStop (NYSE: GME) shares have rocketed 83% from $78 to $143 since Monday 14 March, sparking investor excitement for the next chapter of the ‘meme stock’ craze that first captured the investing world’s attention in January last year.

During its initial short squeeze, traders on Reddit’s Wall Street Bets were encouraged by analyst Keith Gill to pile into the heavily shorted stock. It soared from $17 to over $500 in the space of three weeks, causing billions of dollars of hedge fund losses.

Then, US trading app Robinhood, alongside many others, halted traders’ ability to buy the stock citing regulatory capital requirements. The GameStop share price fell to $40 on 19 February 2021, before soaring again to $264 by 12 March 2021.

After further massive volatility, it eventually peaked at $228 in mid-November, before falling to $78 a fortnight ago.

GameStop share price: full-year results

Results were a step forward for the gaming company. Fiscal year net sales grew to $6.011 billion from $5.090 billion the year before. And after selling millions of new shares in 2021, it raised $1.67 billion in capital, allowing it to eliminate virtually all long-term debt.

Accordingly, it ended fiscal year 2021 with $1.271 billion in cash and $915 million in inventory, compared to $635 million in cash and $602.5 million inventory in fiscal year 2020. GameStop said that ‘increased investments in inventory reflect the Company’s focus on meeting heightened demand and mitigating supply chain headwinds.’

It’s also expanded its product catalogue and grown its PowerUp Rewards Pro member base by 32% year-over-year to 5.8 million people. And it ‘made significant and long-term investments in the Company’s fulfillment network, systems and teams,’ establishing new offices in tech hubs Seattle, Washington, Boston, and Massachusetts.

However, these results are not responsible for the recent gains. The company has closed hundreds of stores over the past few years as gaming companies move to digital models. GameStop shares are clearly not trading on fundamentals.

E-commerce transformation

A few catalysts could be behind GameStop’s share price movement. To start with, the streaming release of ‘GameStop: Rise of the Players’ on 28 January dragged retail focus back onto the stock.

The company then entered a partnership with Immutable X in February ‘to support the development of GameStop’s NFT marketplace and provide the Company with up to $150 million in IMX tokens.’ GameStop also hired ‘dozens of additional individuals with experience in areas such as blockchain gaming, ecommerce and technology, product refurbishment and operations.’

Game Stop said ‘Immutable X will also become a layer-2 partner and platform for GameStop and the Company’s NFT marketplace that is expected to launch later this year,’ and invited ‘creators from gaming studios, web 3.0 and metaverse gaming developers’ to be content creators on the company’s NFT marketplace.

This move into the metaverse is supported by Chairman Ryan Cohen, who recently tweeted there are ‘no overpaid execs in the metaverse.’ And as part of his plan to turn GameStop into the ‘Amazon of gaming,’ he’s hired former Amazon and Alphabet executives, including Chief Growth Officer Elliott Wilke, CEO Matt Furlong, and CFO Mike Recupero.

Cohen first found fame as the co-founder and CEO of Chewy, which grew into the largest pet supplies business in the USA, worth $8.7 billion at its Initial Public Offering launch.

On Tuesday, Cohen bought an additional 100,000 GameStop shares at around $100 each, increasing his position to 11.9% of the company, or 9,101,000 shares. As he tweeted ‘I put my money where my mouth is.’ And these aren’t just words; his shares were worth over $4 billion at the peak of the January 2021 short squeeze, but he retained them all. Other insiders are also buying smaller amounts.

Moreover, GameStop has a strategic multi-year partnership signed with Microsoft in 2020. And Microsoft is buying Activision, the biggest gaming company in the world, subject to shareholder approval next month.

The words of investing legend Peter Lynch may be appropriate: ‘insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.’

But with GameStop’s share price almost entirely divorced from its fundamentals, only further volatility can be guaranteed.

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*Based on revenue excluding FX (published financial statements, October 2021).