Omicron Variant Imposes New Challenges on Pandemic Favorite GameStop

GameStop (NYSE:GME), one of the biggest stock stories of this year, transitioned from an increasingly irrelevant strip mall business to changing the paradigm of the investment market. Possibly for the first time ever, average everyday folks forced Wall Street to recognize the power of the masses. Because of that, the original boosters of GME stock deserve plenty of credit.

Retailers walk past a GameStop (GME stock) store in New York City, New York.
Source: Northfoto / Shutterstock.com

It also didn’t hurt that the underlying company was tied to an extraordinarily relevant industry. True, more people are acquiring games through online channels, thus posing significant long-term challenges to GME stock gains. Nevertheless, video games represented one of the biggest winners of the new normal as the novel coronavirus pandemic forced people indoors.

As The Verge pointed out early this year, more than half of Americans turned to video games to bide their time during the pandemic’s initial phase, citing information from Nielsen. “As physical spaces disappeared, video games became one of the few places for people to spend time together — whether that was to enjoy virtual concerts in Fortnite, learn how to vote or just hang out.”

In numbers, “digital games alone garnered $126.6 billion over the course” of 2020. Further, experts predicted that long-term habits formed during the lockdowns are here to stay for the long haul.

That should be great news for GME stock considering the other catalyst for the gaming world: retail revenge.

Following an extended period of lockdowns and mitigation measures, arguably most people are ready to reclaim their lives. One piece of evidence for this circumstance is that Halloween sales started early — in some cases in July and August.

That just demonstrates the sheer demand for activities involving regular socialization. Buying video games at a physical retailer is among many mundane activities for which people are willing to engage with gusto.

Omicron Might Kill Momentum for GME Stock

At first glance, omicron sounds like a video game title that belongs on the shelves of GameStop stores. In reality, it’s the latest variant of the coronavirus, one which has many health experts worried. Should the worst fears pan out, it could derail momentum for GME stock.

Indeed, it’s already done exactly that. Global markets fell on Black Friday as the implications of the new strain don’t just have negative implications for GME stock. Again, if the worst fears are confirmed, omicron could take down the economy, according to The Washington Post.

Russ Mould, investment director at the investment firm AJ Bell, added some dark color commentary to the situation. “Forget Black Friday; today has been renamed Red Friday.”

Theoretically, video games and other home entertainment options could cynically benefit from the possibly worsening pandemic. However, I’m not really sure if lightning will strike twice. According to The Associated Press, multiple countries are alarmed at the omicron variant.

“The last thing we need is to bring in a new variant that will cause even more problems,” stated German Health Minister Jens Spahn. This comment more than likely echoes concerns across the globe. After a hard-fought battle against Covid-19 that spanned nearly two years, another major threat could derail the fragile recovery.

Let’s also not forget that, at least in the U.S., unprecedented government support at least partially supported video game sales. Otherwise, I highly doubt that consumers will spend on frivolous items if they didn’t know where their next paycheck was coming from.

To be fair, a Bloomberg report from October of this year reported that Americans were still sitting on a $2.7 trillion crisis savings war chest. While this could boost GME stock, let’s be real — will people really spend on video games when they have other pressing concerns?

Out of Everyone’s Hands

While the narrative for almost any stock appears dubious in light of the omicron variant, there’s plenty we don’t know, as noted in the aforementioned AP article:

Omicron has yet to be detected in the United States, said Dr. Anthony Fauci, the U.S. government’s top infectious disease expert. Although it may be more transmissible and resistant to vaccines than other variants, “we don’t know that for sure right now,” he told CNN.

So I don’t want to say one way or the other what will happen to GME stock. I can’t project the direction of a pandemic. At this point, the best anyone can say is hope for the best but be prepared for the crisis to hit a worst-case scenario.

On the date of publication, Josh Enomoto held a LONG position in GME. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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