GameStop Corp (NYSE: GME)
“Game On” is the buzz word today at GameStop (NYSE:GME) after the company reported earnings at the close of trading Thursday, May 28th 2015 and reported better-than-expected profit and revenue. This was attributed to some of the most recent releases of new games. Namely, “Mortal Kombat X” and “Evolve” as well as an increase in their mobile gaming downloads.GameStop is the world’s largest retailer of video game products.
GME stock which rose $1.45, closing at $40.92 in the regular trading session jumped an additional $2.33 or 5.69% in the aftermarket session, closing at $43.25. The company also upped their second quarter earnings guidance far above what analysts had been expecting.
“The outperformance was driven by new software sales, that’s one of the primary reasons…given that main concern on the stock is the impact of digital download on new software sales,” Sterne-Agee CRT analyst Arvind Bhatia said.
The company reported its net income rose 9 percent to $73.8 million, or 68 cents per share. Its revenue grew 3 percent to $2.06 billion. Analysts expected GameStop Corp. to report a profit of 58 cents per share on $2.04 billion in revenue for the quarter ended May 2, according to Zacks Investment Research.
Betting on GameStop’s Extinction
After some easy detective work looking over GameStop’s financials and key statistics, I found that there is a huge short position sitting in GameStop’s shares. A short is betting that the stock will go much lower. The short percentage is 44.90%, or nearly half of the amount of shares outstanding available to be traded publicly. To give you a perspective, it would take on average 30 days for that amount of shares that are short to be repurchased, or “covered,” by the participants that are currently short. Shorting a stock involves borrowing a stock from a broker and selling it into the market with the expectation to buy it backs later at a cheaper price point and deliver it back to the broker. Shorting is a very risky way to try to make money on a stock as share price can forever continue upward theoretically creating massive losses. GameStop has avoided the demise that Blockbuster Video experienced by not changing with the times and the wants and needs of their customers. GameStop has moved into digital online content quickly, allowing customers to download video games and also visit the stores which offer online access as well as the physical games. They have delved hard into selling downloads to the younger customers who don’t necessarily have credit cards making it harder for them to pay for such things online.
GameStop Corp. operates as a multichannel video game retailer. It sells new and pre-owned video game hardware; physical and digital video game software; pre-owned and value video game products; video game accessories, such as controllers, gaming headsets, memory cards, and other add-ons for use with video game hardware and software; and digital products, including downloadable content, network points cards, prepaid digital and online timecards, and digitally downloadable software. – Yahoo! Finance