GME Bear Case
General viewpoint held by those market participants betting against GME stock
- As GameStop's financial circumstances have changed, so too has the case that is made against GME. Currently, that might look something like:
- GameStop has an outdated business model that is ineffective in the modern video game industry, and any attempts at turning the company around are futile
- GameStop's revenue continues to go down year over year, and GameStop continues to close stores and reduce staff
- GameStop's competitors (e.g. Amazon) are much stronger companies and therefore better investments
- GME is an invalid investment because it is a meme stock (or a cult stock)
- The company has no clear strategy; Ryan Cohen does not provide any guidance, thus the future of GameStop is uncertain
- The stock price is down since its peak and it continues to be overvalued
It is true that, during the 2010s, GameStop was a business that was operating in a shrinking market of physical video game sales. From about 2018 to 2020 GameStop was seriously struggling, and the case against GameStop was strong.
“Specific to GameStop, we had a research-supported view well before the recent events [of January 2021]. In fact, we had been short GameStop since Melvin’s inception six years earlier [2014] because we believed and still believe that its business model – selling new and used video games in physical stores – is being overtaken by digital downloads through the internet. And that trend only accelerated in 2020, when, because of the pandemic, people were downloading video games at home. As a result, the gaming industry had its best year ever. But GameStop had significant losses.”
During GameStop's downfall era, betting against GameStop by shorting the stock was arguably a reasonable financial view. The company had weak financials with a poor long-term outlook.
However, GameStop's financial circumstances have changed significantly since then, so it is now a much different calculation with different valuation and different risks.
As GameStop is now in its strongest financial position in the history of the company, the modern bear thesis is reduced to fewer coherent points. Any improvements to the company or recognition of the successful turnaround of the company are ignored entirely. Any notion of a bullish view is dismissed as invalid.
Commonly found bearish points may include:
- Revenue continues to decrease
- GameStop continues to close stores
- Leadership does not provide any guidance
- Ryan Cohen is bad and unintelligent
- The stock is overvalued; the stock only trades sideways; the stock is boring; the stock price is down from its peak
- Opportunity cost: it would be better to invest in something else such as one of GameStop's competitors (e.g. Amazon is often mentioned in media articles)
- GME investors are in a cult and therefore they are delusional and not rational; it is therefore delusional and not rational for any person to consider GME as a valid investment
