GameStop Looks to Capitalize on Reddit Investments 

It’s a story that has been pretty hard to miss. Amateur investors – many of which frequented the “r/wallstreetbets” subreddit – shot the price of several stocks through the roof in an attempt to capitalise on the practise of short selling. No company though was impacted as much as GameStop. The company saw its stock go from $3 apiece in April last year to $483 on January 28th as a result of a huge group effort to drive up the price through investment.

Things have since calmed somewhat, both in the headlines and in terms of the actual numbers involved. GameStop stock hit $186.95 on April 5th. That said, it’s still a great deal more than four bucks, and it still has the potential to turn around the fortunes of what many thought was a doomed company not very long ago.

April 5th also happens to be the day that the video game retailer announced their plans to raise hundreds of millions of dollars through the sale of 3.5 million shares. The company has said they have been evaluating and planning how best to sell its shares, and to what extent, since their astonishing rise mere months ago. Make no mistake, even in their truly enviable position – rarely, at any time, has a company been graced with such astounding good luck – there’s still plenty of pitfalls that could see this dream turn into a financial nightmare.

Technical insights of GameStop’s move

Firstly, such a stock offering could dilute the company’s shares, reportedly up to a possible 5%. Therefore, there is a possible sacrifice to be made there in return for such a huge cash injection. Also, how the money is spent is, of course, of critical importance. The fact is that if a business has a model which simply does not work in today’s increasingly online environment, then money alone won’t change that.

Remember too that GameStop wasn’t exactly out of cash before this all began, with a reported $508.5 billion in cash and cash equivalents as of January 30th this year. That is not that long ago, and certainly long before Reddit took their share price and fired it into the stratosphere. If that cash couldn’t stop GameStop’s store number dropping 13% in a year, why would the additional hundreds of millions change those fundamental issues which have dogged the company over the last few years?

Well, because it’s not just money they have, but a plan as well. GameStop has committed to transform from a simple brick and mortar retailer to something much more technological and modern, with a focus on e-commerce. This is alongside huge shifts in management and the hiring of several top executives from the likes of Amazon.

GameStop’s future outlook

The truth is that the new business model, those store closures and more are likely inevitable to GameStop’s fight to evolve with the industry. Will it work? Only time will tell, but it’s certainly promising that the company already boasts some improving sales trends during the Coronavirus pandemic, and before any of these changes or the extra money takes effect. Whatever the outcome of GameStop, there’s little doubt about the cultural impact this struggling company has had as a symbol of a truly historic event in the history of the financial markets.

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