is this good for Gamestop longterm? or mixed?
This current development is caused by loads of people betting on Gamestop going bust over the past couple of years.
But initial physical/digital cut of next-gen looks quite good for physical and promising developments in Gamestops leadership created expectations of them turning the business around and finding a gaming e-commerce niche in which they will be able to work through physical-digital transformations in the market and stay relevant.
Basically, this current development just means that Gamestop isn't dead just yet and those who bet on it dying are getting fucked.
But it doesn't say much about Gamestop's future.
For that, we will need to wait for how Gamestop actually goes about restructuring its business. Personally, I think it is not unlikely that Gamestop will pull off a successful turnaround.
But the current stock price is just a result of the short positions being sqeezed. It doesn't reflect anything about Gamestop's current business or prospects.
Does anyone remember when VW went up to above 1000€ a share during the financial crisis?
This was also a short squeeze. Hedge funds had bet on VW going down when Porsche announced it would want to increase its stake to eventually a majority. Since 20% of VW are traditionally held by some german state government only a small percentage of shares were free and prices skyrocketed as hedge funds tried to cover their short positions. The prices went so high that Porsche was unable to raise enough capital to take over a majority stake in VW, though, and eventually, the thing normalized again.
Porsche shortly held a majority, but its own debt had increased to dangerous levels because of it, so they eventually backed down.
This was back in 2008 and I was in school back then and we did a virtual stock market game in our economics class.
We traded with virtual capital but real stocks for like a semester. Usually the winners (this was between many schools, so loads of participants) doubled their positions over the course of these few months.
But this year, because the market was so crazy, the luckiest groups increased their positions value 10 fold, even 20 fold.
But just the same, losses were by an order of magnitude more pronounced than in other years.
Short squeezes are once in decade opportunities and seem to become more likely in turbulent market situations.
It is hard to identify potential ones.
Basically, you need to find a company that is on a predictable downward trajectory and shorted to hell and back, while a turnaround approaches quickly and doesn't leave time for the holder of the short positions to get out or cover.
In Gamestop's case the turnaround came in the form of new leadership with robust e-commerce experience and a new console generation which provided initial assurance that physical sales might not be a thing of the past just yet.
That said, imagine last March, markets had just crashed, people were in quarantine, lockdowns with no end in sight. Massive capital injections by the central banks expected but not yet certain and even then, with uncertain effects.
Who would bet on a used physical games business in that time? Or rather, would get out of a bet against this business at that time.
This year on Christmas I visited my parents in my hometown. As is usual I contacted some old friends from school and went for a walk with one guy who works in investment banking.
We talked about all kinds of things, also finances and at some point, he told me about this thing he has going with Gamestop stock.
He probably didn't even expect me to know what Gamestop is, so when I showed some interest he told me, all giddy, about the potential short squeeze and the Chewy guy coming int etc.
He is in a really good mood now. The price hovered below 20$ at the time, he went in at below 10.