We're all aware by now of how a group of amateur traders have stuck it to a few of the Wall Street elite (catch up here if this is news to you) — but not many stories have focused on how this actually affects GameStop as a company.
We dug out the last 10 years of financial results for GameStop, and they tell the story we now all know — that being a brick-and-mortar video game retailer was a tough gig in an increasingly digital market. Modest profits for much of the last decade gave way to declining revenues and more than $1bn of losses in the last two fiscal years.
Is GameStop set to flourish?
Of course, somewhat ironically, the greatly increased share price of GME doesn't affect the day-to-day operations of the company in the slightest. Shareholders are a lot richer, but the business of selling video games and consoles is unchanged. Under more normal circumstances, a soaring share price could be cashed in — the company could issue new shares to meet the overwhelming demand and then use that cash to invest in the business. That's something Tesla has done 3 times since its stock took off last year.
The problem GameStop has is that this situation is anything but normal. Demand for its shares is likely to eventually disappear just as quickly as it arrived, and the entire point of the short squeeze is that it is predicated on a relatively thin supply of shares being available for sale in the market.
GameStop issuing a few million new shares could kill the momentum but at the current ~$300 price would raise a few billion of fresh capital, helping the company to survive and thrive long after this story ends.
In more "normal" situations an investment bank would often underwrite such an offering, guaranteeing a certain (usually slightly discounted) price for those new shares. The problem is we can't imagine many are willing to do so when GME is regularly up or down 50% over the space of a few hours or even minutes.
