What Is GameStop, the Company, Really Worth? Does It Matter?
For many years, it didn’t matter that GameStop’s stores were a little grungy.
They were the place where millions of young people could trade in used games, debate the merits of different franchises and get advice from GameStop’s staff, often avid gamers themselves. In the 2000s, this winning formula propelled the company to open thousands of stores around the world and make money hand over fist. GameStop’s stock more than doubled in 2007 because investors believed the good times wouldn’t end.
But, as with so many retail stars, GameStop began to struggle a decade or so ago as gamers, like everybody else, made more of their purchases on the internet, opting for downloaded games or two-day delivery over a visit to the mall.
That history makes the recent frenzy in the shares of GameStop all the more strange. Although the company’s sales are declining and it is losing money, its stock, which closed at $325 Friday, was up over 1,600 percent in January alone, bid higher by a horde of online traders. It closed at $225 on Monday, down 31 percent for the day.
A company worth $1.3 billion on the stock market on New Year’s Eve was worth about $21 billion at the end of last week, roughly the same as Kellogg’s, the cereal maker, which, unlike GameStop, is solidly profitable.
This huge disconnect between GameStop’s stock price and how the company is actually doing has created one of the more bizarre moments in Wall Street’s over 200-year history.
Most of the traders who have been piling into the stock are likely chasing easy profits, and probably do not care whether GameStop’s strained business could make a miraculous turnaround.
But the rally in the company’s stock invites important questions: What is this company actually worth — and does that even matter if enough investors are willing to pay more?
GameStop vs. Wall Street
Let Us Help You Understand
- Shares in GameStop, the video game retailer, have soared because amateur investors, starting on Reddit, have bet heavily on shares of the company.
- The wave gained momentum in response to large hedge funds short selling GameStop stock — basically they were betting against the company’s success.
- The sudden demand has driven up the share price from less than $20 in December to around $300 on Monday. On paper, anyway.
- It’s not just GameStop. Amateur investors have backed other companies that many big investors had shunned, such as AMC and BlackBerry.
- This bubble around GameStop forced big investors to raise money to cover their losses, or dump shares of other companies.
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