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- GameStop has an outdated business model that is ineffective in the modern video game industry, and any attempts at turning the company around are futile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.
