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GME stock shows signs of weakness as short sellers lose interest


It’s time for Redditors to rejoice. After struggling with hedge funds for almost a year, we’ve finally come to a point where most short sellers are skeptical about hitting GameStop (NYSE:GME) Stock.

Source: Northfoto / Shutterstock.com

The short-term interest percentage of the total float stands at 16.98%, as of Aug. 30 from a peak of 141% in the first week of 2021, according to the financial technology and data company. S3 Partners.

After losing billions of dollars in this fight with retail investors, it looks like the bears are finally throwing in the towel.

Short-term interest is one of the main reasons Redditors liked GME stocks in the first place. They saw this as a great opportunity to teach Wall Street a lesson. Despite double-digit growth in the gaming industry, GME has been struggling for several years now.

Many believed that the situation would mirror that of Blockbuster. It was once the king of the video rental industry, but it was quickly relegated to the background after Netflix (NASDAQ:NFLX) has appeared.

Now it exists as an uplifting tale. Given these circumstances, it was only natural for analysts to predict whether the ailing video game retailer would file for bankruptcy.

However, we all know what happened next. The redditors came to the rescue, and the company now has the financial resources to restructure and retry the experiment.

That being said, the next question on everyone’s mind is when the penny is going to go down. There is a significant disparity between the share price and fundamentals. It’s only a matter of time before they reconcile.

Quarterly results that give you food for thought

The only way GameStop can keep its earnings is to deliver excellent quarterly results. Unfortunately, that doesn’t seem to be happening.

In the second quarter ended July 31, 2021, GameStop delivered a lackluster report much like the first quarter.

Revenue was $ 1.183 billion, a 25.3 percent year-over-year increase from $ 942 million a year earlier. Even though this is an increase, you have to put the numbers in context.

Last year, the majority of GameStop stores were closed during the pandemic. It has been an unusual year, so if we compare it to pre-pandemic numbers, revenue numbers fall 8% below the $ 1.29 billion produced in the second quarter of fiscal 2019. Meanwhile, GameStop reported an adjusted loss per share of $ 0.76, which missed analyst estimates. of $ 0.09.

The real concern that emerges from this earnings season is software sales. They fell to $ 397 million in the quarter, from $ 558 million in the same period last year.

Although people still buy physical copies of games, digital copies are more popular. These purchases eliminate the middleman and eliminate the problem of customers receiving damaged discs.

GameStop can be proud of hardware sales, which reached $ 610 million in the last quarter. However, the major problem that the company will have in the future is to increase the reach of digital sales.

The other thing to note is that the launch of new game consoles from Sony (NYSE:END) and Microsoft (NASDAQ:MSFT) lead to a hyper sales cycle. This time around, the shortage of semiconductor chips hampered the process. But eventually, sales will level off, which means digital sales are critical to the long-term future of the business.

Recovery strategy

Ryan Cohen and his leadership is one of the main reasons a certain group of investors remain optimistic about GME’s chances of a comeback.

I have featured him extensively in my previous articles on the video game retailer, and I continue to believe that the team he has assembled will be the driving force behind the company.

However, at the moment we don’t have a long list of announcements regarding the strategy. In recent weeks, the only major news we have heard is the opening of a customer service center in Pembroke Pines, Florida. GameStop is hiring 500 call center employees for this company.

The major problem, however, is digital selling. There are some developments that should give you heart. For example, there is immense interest in its partnership with Microsoft.

Once the semiconductor crisis is resolved, GME could see more digital sales thanks to the Xbox Series X and Xbox Series S. The monetization of GameStop.com is also something management can focus on, given that the video game retailer is aggressively looking to move away from its traditional brick and motor business.

Time may be running out for GME Stock

On countless occasions this year, analysts have predicted the end of the world for GME stock. But every time these analysts had to eat a humble pie, yours included. Considering the year we’ve had and GME’s status as an iconic meme stock, it may seem like the eventual drop will never happen.

However, with the evaporation of short-term interests, now is the time to part with your investment. All parties involved got what they wanted.

GME has $ 1.7 billion in net cash on its balance sheet, which is more than enough to fund its turnaround. Editors made their money and outperformed hedge funds.

Now the inevitable grind will begin for GameStop to transform, which will take a considerable amount of time.

At the date of publication, Faizan Farooque had (directly or indirectly) no position on the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.

Faizan Farooque is a contributing author for InvestorPlace.com and many other financial sites. Faizan has several years of stock market analysis experience and was a former data reporter at S&P Global Market Intelligence. His passion is helping the average investor make more informed decisions about their portfolio. Faizan does not directly own the securities mentioned above.


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