Hey, Reddit. I warned you guys about GameStop (NYSE:GME) stock. About a month ago, I wrote that GME stock is a certain loser for 2022. That was not that hard of a prediction — in fact, it was just common sense.
Now look at the chart. GameStop is down more than 34% since I wrote those words and nearly 33% just in 2022. In fact, the stock finally dipped below the $100 mark for the first time since r/WallStreetBets artificially inflated GME nearly a year ago.
Rest assured, this isn’t one of those stories where I tell you there’s a golden opportunity to get a solid stock at a discount. GME stock is still wildly inflated. And the chances of it going “to the moon” again are slim, if at all.
Here’s what’s driving GameStop down right now.
GME Stock and the Microsoft-Activision Blizzard Deal
Earlier this month, the video game industry was rocked when Microsoft (NASDAQ:MSFT) agreed to buy Activision Blizzard (NASDAQ:ATVI) for $68.7 billion. This will make Microsoft the world’s third-largest gaming company and one of the largest in the U.S. once the deal closes next year. Microsoft will add franchises like Call of Duty, Candy Crush, World of Warcraft and others to its already impressive stable.
Of course, this deal still needs to win approval from the Federal Trade Commission (FTC), the U.S. Securities and Exchange Commission (SEC), the U.S. Justice Department and European Union (EU) regulators. But here’s why it’s bad for GME stock.
Microsoft already makes its games available directly to consumers through its successful Xbox Game Pass monthly subscription service. Further, Microsoft has already announced that, when the Activision-Blizzard deal goes through, it will be adding that company’s very popular titles to Game Pass.
By the time the deal goes through, Game Pass will feature even more high-quality games. So, will a gamer be more interested in spending $10 for a used game at GameStop or will they spend $9.99 a month to access hundreds of titles at once?
No wonder why the GME stock drop accelerated when the Microsoft-Activision Blizzard deal was announced.
GME Stock at a Glance
Unsurprisingly, GameStop’s most recent earnings report wasn’t great for GME stock either. For example, the company reported that its net loss grew from $18.8 million in the third quarter of 2020 to $105.4 million in Q3 2021. That equates to a loss of 29 cents per share a year ago and a loss of $1.39 per share now.
What’s more, the company also declined to provide guidance for Q4 as well as full-year 2022. I can’t say I blame executives for giving a hard pass to that one.
Revenue at least was on the upswing, rising from $1 billion a year ago to $1.3 billion in Q3 2021. GME said it increased its inventory levels to mitigate the effects of global supply chain issues before the holiday shopping season.
Finally, GameStop also promoted the fact that it opened new offices in Seattle and Boston in an effort to attract top technology talent. The Wall Street Journal also reported that GME is launching a division to develop a market for non-fungible tokens (NFTs) and cryptocurrency partnerships.
The Bottom Line on GameStop
About a year ago, GME stock was flying high, rising to nearly $500 per share as Reddit traders tried to force a short squeeze after learning hedge funds like Melvin Capital and Citron Research had huge, short positions in GameStop.
That worked, to some extent. The hedge funds were forced to take big losses, but the squeeze itself was short-lived.
I appreciate that a company like GameStop has such a rabid following. I have some great memories of shopping at GameStop, myself.
However, the reality is that GME stock is a weak company. It had $8.29 billion in revenue in 2019, but only about $6 billion in 2021 despite the Reddit love. This year’s revenue is projected to be $5.9 billion.
I’ve said it before and I’ll say it again now: GameStop is a certain loser of a stock in 2022. Stay away.
On the date of publication, Patrick Sanders did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not hold a position in any of the aforementioned securities.
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