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Analyzing Gamestop, The Stock Confounding Short Sellers
Wednesday, January 27, 2021 • 6:00 PM EST
Gamestop finds itself in a unique position. Since 2018, Short sellers are concerned the stock is overvalued, resulting in over 200% of the stock’s float being shorted as of Dec 2020. On the other hand, supporters of Gamestop’s meteoric stock rise in 2021 are telling short sellers precisely where to put their opinions. To better understand Gamestop’s business, Cardify analyzed Gamestop’s revenue, average order value, transaction frequency, and average monthly spend per customer. Together, these data points paint a decent revenue picture for Gamestop, showing the company earned more revenue and saw higher average order volumes in 2020 compared to 2019.
1. Gamestop’s 2020 revenue was 15.7% higher than 2019 revenue, but followed roughly the same pattern and seasonality.
2. Average order value grew in 2020, staying higher than 2019’s average order value for most of the year and trending upward yet again at the end of 2020.
3. Despite lockdowns affecting Gamestop’s in-person locations, data shows that monthly purchase frequency was up slightly year over year.
Looking at revenue comparisons, Gamestop saw spikes at the beginning of the pandemic as lockdowns first started. Revenue levelled off from there to 2019 levels, but began to spike again during the holiday season. The 2020 holiday spike was 20.6% higher than 2019’s holiday spike. For the first two weeks of 2021, revenue is trending 159.2% higher than the same period in 2020.
Looking at average order value, it’s clear that people spent more per order - in some cases nearly double - in 2020 compared to 2019.
Despite the pandemic - and Gamestop relying fairly heavily on in-person traffic for sales - data suggests that purchasers were not deterred. The data shows people are buying slightly more frequently in 2020 than they did in 2019, though the trendlines are still quite close.
Combining a higher average order value and a slightly higher purchase frequency, Gamestop is benefitting from a higher average monthly spend per customer. Average order volume in 2019 consistently hovered around $80 per customer per month. This grew to roughly $100 per customer per month in 2020 and saw spikes - up to about $140 per customer per month - throughout the year.
Short sellers say that Gamestop’s fundamentals are weak resulting in massive short positions. However, Gamestop bulls are currently using market mechanics of a short-squeeze to increase the price and holding resulting in a 1750% increase in the last month alone. Regardless, revenue trends suggest that Gamestop has a lot going for it as average order value increases alongside purchase frequency. What remains to be seen is whether the company meets the expectations of the bulls or the bears.