Downfall Era of GameStop
From approximately 2018 through 2020, GameStop was heading downwards
- By 2018, GameStop was operating with a bloated legacy business model that was failing to adapt to a changing gaming industry.
- Revenue was declining as more consumers shifted to digital game downloads and subscriptions such as Xbox Game Pass and PlayStation Now, and GameStop had too many stores as their market was shrinking
- The company was losing hundreds of millions of dollars annually while an ineffective and oversized board of directors approved millions in executive compensation and relied on costly consultants in a failed attempt to reverse its decline
For many years GameStop was a successful business which mainly sold video games and consoles, and had a well-established trade-in model.
By the early 2010s, digital video game sales began to grow, and some time around approximately 2017, digital sales of video games exceeded physical sales of video games.
As GameStop failed to adequately address the changing video game market, starting around 2018 the company began to falter.
GameStop started losing hundreds of millions of dollars per year and there didn't appear to be any promising plans to turn the situation around.
The COVID-19 pandemic in 2020 further compounded the challenges faced by the company. Mandatory store closures, reduced foot traffic, and widespread economic uncertainty put intense pressure on the company.
In a brief interview at The Bitcoin Conference 2025, CEO Ryan Cohen provided some comments reflecting on the struggles that the company faced when he first got involved.
When I took over, the company was a piece of crap and losing a lot of money. The company was under a lot of pressure, moving from physical games to digital downloads.
You had a lot of executives and directors that were very short-sighted, and effectively they were making decisions that were, what they call in corporate America, in good corporate governance, which is effectively screwing shareholders. So, we got rid of all of that nonsense and we focused on running the business profitably.
The market price of GME stock was declining as GameStop's financial outlook worsened. Some market participants saw this as an opportunity to profit from the declining value of the stock, and shorted the stock.
The short interest of GME during this time rose to extraordinary levels — well over 100%, and according to one data source it even exceeded 300%.
Contrary to those shorting the stock, other investors, notably Michael Burry at first, and then subsequently Keith Gill and Ryan Cohen, saw the stock as undervalued and bought shares.
Keith Gill was active across various social media platforms, including YouTube, Twitter (now X), and Reddit, and discussed his investment thesis on those platforms. Over time, through 2020 and into 2021, a social media phenomenom grew around Keith Gill's commentary, and thousands of retail shareholders began buying shares of GME, ultimately culminating in the sneeze of January 2021.
