GameStop stock consolidates around $26 as Ryan Cohen doubles down on GME
- GameStop dropped alongside other stocks due to Jerome Powell’s remarks on Wednesday.
- GME stock has found it difficult to break through the $27-$30 barrier.
- Ryan Cohen added another $10 million worth of shares on Tuesday.
- GME has gained 49% YTD despite poor Q1 results.
GameStop (GME) sold off in Thursday premarket once again, a day after the stock fizzled on Federal Reserve Chair Jerome Powell’s admission that rate hikes may resume later in the year. GME stock lost 4.6% on Wednesday and dropped another 1.4% to $25.35 in the premarket. NASDAQ 100 futures have sold off 0.7% on Thursday.
GameStop stock news: Can Ryan Cohen turn this ship around?
On June 7, GameStop was thrown into disarray by the firing of CEO Matthew Furlong. GameStop Chairman Ryan Cohen, long a proponent of the struggling video game retailer since the meme stock heyday of early 2021, was named Executive Chairman.
GME shares have since rebounded from $20 to above 27 in the following four sessions, but the Federal Reserve Chairman’s announcement on Wednesday led to a sell-off. While the entire market was expecting the Fed to pause rate hikes, which is what indeed happened, Powell was clear that this was a “skip” that might very well result in more rate hikes later in the year depending on the trajectory of inflation. With the market expecting Powell to announce that rate hikes were finished for good, if not announce that rate cuts would soon be on the table, stocks sold off across the board.
Ryan Cohen’s purchase of $10 million worth of new GME shares had helped GameStop’s stock price regain its composure after last week’s poor first-quarter results. The results, which saw revenue drop 10% YoY, was the cause of Furlong’s unemployment. Cohen now owns more than 12% of GameStop, and his fierce loyalty to the corporation has kept a number of investors fortifying their so-called “diamond hands”. Cohen now owns 36,847,842 shares of GameStop worth $947 million, which is about one-quarter of the Chewy.com founder’s net worth.
Cohen has his work cut out for him. With five different CEOs in about five years, not one has been able to end the drain on new game purchases. Quarter after quarter, gamers have steadily switched to digital downloads rather than in-store purchases. The most recent quarter did see merchandise and hardware sales increase from a year ago however, so maybe there is an end to the retreat on the horizon.
Gamestop FAQs
What is GameStop?
GameStop is a retailer of video games and gaming merchandise through its approximately 4,400 branded stores worldwide. More than 2,900 of these locations are in the United States. The company was founded in Dallas, Texas, in 1984 as Babbage’s but changed its name to GameStop in 1999. The company had revenue of $5.93 billion in 2022 but has been falling over the past decade as physical game purchases have been declining in favor of digital downloads directly from hardware providers like Sony’s Playstation, Microsoft’s XBox, Nintendo and the Steam platform. The company trades under the GME symbol on the New York Stock Exchange.
Why is GameStop called a meme stock?
In January of 2021, retail stock traders that organized on Reddit’s r/WallStreetBets forum realized that GameStop’s short ratio exceeded its float through the use of naked shorts. This information circulated until a group of traders decided to buy up the small amount of shares that were available. This caused the price to jump 1,500% in a famous short squeeze that month when short-sellers were forced to repurchase shares to close their short positions at higher and higher prices. Traders like Keith Gill walked away with millions of dollars in profits, while hedge funds like Melvin Capital and White Square Capital would eventually shutter due to extreme losses on their short positions. Traders on the Reddit forum made memes to proselytize their bets on GameStop, which helped the long trade proliferate. Later many of these same traders would glom onto new “meme stocks” like AMC Entertainment and Bed, Bath & Beyond.
How is GameStop’s business doing?
In its most recent quarter, Q1 2023, GameStop saw revenue decline 10% YoY to $1.237 billion, which is pretty much par for the course. Much of the reduction in sales is due to declining game and collectible revenue, while hardware and merchandise sales have actually been increasing. GameStop has been making the most of the situation by cutting back on labor costs (SG&A) to the tune of $100 million YoY. These cost-cutting measures led GameStop to cut its net loss YoY by two-thirds to about $50 million. With more than $1 billion in cash on its balance sheet, so its backers think it has enough runway to become profitable again. Out of 12 recent analyst marks, the vast majority gave GME stock a “Hold” rating, while four analysts gave it a “Buy” or “Strong Buy”.
How does Ryan Cohen factor into GameStop?
Ryan Cohen, the founder and former CEO of Chewy.com, made a large investment in GameStop in December 2020, preceding the stock’s epic short squeeze. Cohen became one of the most high-profile investors in the meme stock and later became Executive Chairman of the company. His tenure has resulted in a number of high-profile changes to management. A number of executives left GameStop once Cohen arrived, and he is said to have used his perch to install new executives from Chewy and Amazon in key positions. Cohen owns approximately 12% of the company.
GameStop stock chart
It is unsurprising that GameStop decided to retract since the stock was within the $27 to $30 overhanging supply zone. This area acted as resistance for the entire second half of 2022, and $27 held firm once again on March 22 of this year. Bulls will need to push GME stock through $30 before a real rally is in the cards. Until then, GameStop stock will continue to ricochet between $20 and $27.
GameStop stock is up 49% year to date, so plenty of traders will continue watching this stock closely. The Relative Strength Index (RSI) did not reach the overbought threshold this past week, so some small-scale buying should continue.
GME daily chart