Adria Cimino, The Motley Fool
5 min read
In This Article:
-
GameStop’s revenue has dropped in recent years as video game customers have made fewer trips to stores and favored digital downloads.
-
The stock has also been volatile, and it made headlines a few years ago due to a major short squeeze.
Share price volatility isn't new territory for GameStop (NYSE: GME). The beleaguered video game retailer was the center of a short squeeze in 2021 that resulted in swings from sharp gains to losses -- and since then, the company has seen its stock price decline. The reason for the turmoil? GameStop's revenue has suffered as the video game market shifted to digital downloads, a blow to the retailer's business model.
The company has fought back by aggressively cutting costs, and it even recently announced another way to fill the coffers. But these moves haven't necessarily pleased investors enough to significantly -- and steadily -- boost the stock. Let's look at the latest on GameStop and find out what's driven its most recent declines.
GameStop's troubles began well before the short squeeze as the move to digital hurt revenue growth. The situation worsened during the coronavirus lockdowns, which kept people out of stores, and instead at home and online. This has continued as customers adopted this new way of accessing the latest games.
By 2021, short positions represented 140% of GameStop's shares held by public investors. This means that these investors were betting on the stock's decline. This figure of more than 100% shows that some shares were shorted multiple times. Shorting a stock involves borrowing shares and immediately selling them, then ideally purchasing them in the future at a lower price to return to the owner -- and gaining on the price difference. If the stock rises, though, short sellers must buy the stock at a higher price, and this may result in dramatic losses.
In 2021, a movement led by retail investors to rapidly buy GameStop shares caused the stock to soar, creating a short squeeze, and short sellers rushed to buy the stock to cover their positions. All this led to meteoric gains and then sharp declines for the shares.
Since that time, GameStop has taken steps to recover, cutting costs to favor profitability. For example, in fiscal 2023, it ended operations in Ireland, Switzerland, and Austria, and in 2024, the company sold its Italian subsidiary. This year, it announced a planned exit from France and Canada. GameStop closed 590 U.S. stores in 2024 and expects to close a "significant number" in 2025.
