GME Bear Case
General viewpoint held by those market participants betting against GME stock
- GameStop has an outdated business model that is ineffective in the modern video game industry, and any attempts at turning the company around are futile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 remains overvalued and is therefore destined to continue going down
Specific to GameStop, we had a research-supported view well before the recent events. In fact, we had been short GameStop since Melvin’s inception six years earlier 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 continually improves, the modern bear thesis is reduced to fewer coherent points. Any improvements to the company or recognition of the turnaround are ignored entirely. Any notion of a bullish view is dismissed. Commonly found bearish points may include:
- Revenue continues to decrease
- GameStop continues to close stores
- Leadership does not provide any guidance
- The stock is overvalued; the stock only trades sideways; the stock is boring
- Opportunity cost: it would be better to invest in something else (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
