The queen of the meme stocks’ earnings report disappointed; we take a look at the stock of GameStop.
UPDATE March 26
GameStop released its Q4 2023 financials on March 26. Analysts had expected revenue to drop to $2.05 billion, and the report came in at $1.79 billion. Adjusted earnings were expected at $0.30 per share; they came in at $0.22 per share in the report.
The stock of GameStop was dropping in after-hours trading.
About Gamestop stock
GameStop corporation stock was, for a while during the COVID pandemic, the most talked-about stock in the world. It had everything - a tremendous story of corporate greed and a plucky band of retail investors, fortunes made and lost, court cases and politicians weighing in. By the end of 2021, GameStop corporation stock had become the first, and arguably the most famous meme equity of the year. What happened, and where does it go next?
Before COVID hit, the stock of GameStop was on the radar of a few analysts who thought that the gme stock was undervalued. Others thought that the stock was unfairly targeted for short selling, and yet others noticed a rather rare circumstance. In fact, it was shorted to 140% of its shares available to the public. In other words, to cover their existing positions, traders would have to keep buying and selling the stock, and the resulting buy pressure would only raise prices higher.
The GameStop story
In January 2021, a group of retail investors in the r/wallstreetbets subreddit initiated a short squeeze of the gme stock. Soon, others piled in, including some hedge funds. The stock of GameStop rose 30x by the end of January. In response to the climb, other meme stocks and alternative investments such as cryptocurrency followed suit. In February 2021, volatility and prices had moderated somewhat, but 25% swings were still recorded.
The damage to hedge funds that had shorted the stock was immense. The trading app used by many in the subreddit, Robinhood, withdrew the GameStop corporation stock, and thus brought a raft of lawsuits upon itself from users who insisted that Robinhood had removed the gme stock at the behest of hedge funds with losing positions and market making clearance houses that were sister organizations of investment banks, in particular Citadel Securities.
No longer a game
By the end of January, the U.S. government had become involved. The Treasury Department was monitoring the situation. The Senate Banking Committee held hearings regarding the equities market. In particular, the House Financial Services Committee grilled Citadel CEO Kenneth Griffin and Robinhood CEO Vlad Tenev over their companies’ practices.
Is GameStop stock story closed without major repercussions, but a new one has emerged. The company has engaged in a practice of extreme frugality that might pay off; losses are down almost 90%. Investor loyalty is still very high, which can hurt liquidity, but it means that investors are still passionate about it. The Street notes that in the three months following the company’s release of its Q3 results, three analysts covering GameStop have revised their earnings projections upwards, while revising revenues downwards, for Q4.
GameStop will announce its Q4 earnings on March 18, 2024.
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