So I guess the hyped up earnings report and the large short position has set up a squeeze and it hasnt been a fun few days for us shorts. While waiting for the stock to go back down, I keep in mind the following things:
- Earnings declined 50% last year despite new game console announcements at the overwhelming success of GTAV.
- Game sales have been declining for a while, and this was before the new consoles (which are way better at downloads) and PS Now.
- Gamestop is continuing to close stores.
- New announcement from Amazon will surely be the end of Nintendo hardware. Will also put a huge dent in whatever is left of the casual gamer market. Sets nice high bar for Apple who surely will try to respond.
- Despite what CEO says, Walmart entry into your market is never a good thing.
I think institutional holders that want to sell see the large short position as an opportunity to make a market for unloading their shares. To do that they have to buy more shares and drive the price up then sell them back and more into the covering. This can go on for awhile. I chose to add slowly into a short position. However, a confirmed break of 45 pps, then I take may lumps and move on. Gamestop seems desperate to me trying to reinvent themselves which is a very risky undertaking especially since they are solidly positioned in gaming.