Wall Street still doesn’t understand the game that retail investors are playing with GameStop (NYSE:GME) stock.
They thought it was about squeezing the shorts. They thought it was about short-term profits. They thought that once the game was over, the players would all go somewhere else. They still think all that.
The players haven’t left.
GameStop closed yesterday more than $206 a share. True, far off its January high of $347 but light years from the single-digits it was at a year ago. The market capitalization of $15.8 billion is about 3 times estimated 2021 revenue of $5.6 billion, but that’s not the point either. What is, you ask?
Believe in the GME Stock Billionaire
GameStop investors believe in the vision of Ryan Cohen, the Chewy (NYSE:CHWY) co-founder who launched the meme and used it to take over the company. He put $76 million into GME stock last year, buying at an average price of $8.40 a share.
Then, Cohen took over as chairman. He overhauled the board. He recruited Matt Furlong from Amazon (NASDAQ:AMZN) to be CEO.
Cohen’s young investors understand how gaming is moving from desktops to the cloud and back again. They see it becoming increasingly immersive. For many, gaming isn’t an adjunct to other forms of entertainment, but a replacement. This is the trend driving names like Nvidia (NASDAQ:NVDA) forward. They think Cohen can get them into that growth stream.
Wall Street Worries
Wall Street listened to Furlong’s first earnings call and heard a lot of gobbledygook. CNBC’s Jim Cramer told viewers GameStop “offers you nothing,” preferring theater chain AMC Entertainment Holdings (NYSE:AMC), also of meme fame.
GME stock investors aren’t listening. While regulators look backward at the meme-based short squeeze that got them into the stock, they’re now looking forward. Hollywood wants to turn GameStop into a movie. The investors want to replace movies.
Who is Right?
Cohen talks about a “vision” for turning GameStop into an e-commerce platform. The kids who grew up going to the stores, he says, can be turned into adults who buy it all online. They will trust GameStop to lead them into the next big thing.
The problem is that immersive, artificial worlds where players become characters in their own stories don’t exist yet. You can find the pieces here-and-there. They’re in VanGogh exhibitions, in new creation engines, in gaming headsets, in $5,000 gaming hardware. It’s a bit like the PC revolution before Visicalc. There’s no “killer app” that makes analysts’ eyes light up.
Today’s GameStop investors believe Cohen and Furlong will find the next big thing and lead them to it. They ignore the fact it was Petsmart that made Chewy big, buying it for $3.5 billion, then taking it public. (Chewy is now worth $30 billion.) They see the vision, they know Cohen can sell the vision, they believe Furlong can execute the vision, and they’re in for the long haul with said vision.
The Bottom Line
My kids are at the heart of the GameStop audience. They don’t watch TV. They don’t go to movies. They play video games.
I have friends in the entertainment business. They understand this idea of a unified entertainment theory, of immersive entertainment becoming fully interactive. The Facebook (NASDAQ:FB) metaverse is real, they say.
Whether Cohen and Furlong are the vehicle for this is uncertain. Visicalc eventually disappeared. Spreadsheets were replaced by databases. Echoes can be found in companies like Oracle (NYSE:ORCL) and salesforce.com (NYSE:CRM), in the cloud itself.
GameStop investors know where they want to go. They don’t know how to get there. They believe Cohen and Furlong can get them there. They’re not selling until they’re proven wrong.
Wall Street needs to get used to that.
On the date of publication, Dana Blankenhorn held long positions in AMZN and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
