Short squeeze giants and their potential futures.
Viability of GME
GameStop brick and mortar store (credit: creative commons)
GameStop has seen its annual revenue gradually drop lower year by year, the fact that video games are transitioning to online forms of marketing has a big hand in this, digital downloads for example are working their way overtime up to making physical disc copies of said games obsolete. To drop the businesses viability into further doubt we should also look at how many traditional brick and mortar stores GameStop has just under five-thousand physical stores in mall areas and similar locations (4,816 to be exact) which, if you follow the trend with the digital transition is not good news, as over time if no action is taken by GameStop, a fairly large portion of these stores would have to close due to their operating costs losing their giant more revenue each day said stores are running.
Even when customers do want to buy physical discs for their consoles, most are going to conglomerates like amazon that can guarantee fast delivery along with outstanding service, and most importantly a competitive price. And game stops recent unusual mishap in the stock market recently involving robin hood and Reddit would’ve also potentially drawn customers away from visiting said stores, with the pandemic making it even harder as the USA was hit particularly hard by COVID-19 and most of the population would be under some form of quarantine.
Although this has allowed GameStop to grow their online presence to compete with businesses like Amazon, and the recent release of the new Xbox and PlayStation have shown this as people flocked to sites like GameStop to buy one of these new consoles which were highly limited in numbers at initial release, the fact that GME could secure a consistent supply of said consoles has allowed them to retain some sort of profit after their stock market priced soared with GME ending the quarter with just over $600m although they may have suffered substantially more and potentially bad publicity by this due to Robinhood’s unprecedented actions. This shows they are not going away, but that they will also have to adapt to keep GameStop afloat and viable.
Robinhood's Viability
Robinhood’s viability has quite obviously come into question in recent months mainly due to the situation with GME stocks, which truly showcased them crumble under pressure from various parties, their flawed customer services also shocked many, with reports from thousands (if not more) of several-hours long waiting lines when calling said helpline that led to many calls being straight up terminated after these somewhat pointless waits. More recently they suffered an outage for a full trading day which is detrimental to most users on the platform to say the least because a full day can have a huge effect on users, especially when some stocks are so volatile with their standings, price etc. in the current situation (Global Pandemic) an outage is scrutinised even more due to a substantial amount of people being active on said platform in compared to usual (Pre-Pandemic).
I think how Robinhood approached the GameStop stock hurdle showed how unreliable they are in certain situations, and also showed how low they would stoop to save face (market manipulation) which backfired massively and has now damaged their national reputation in the US along with their global reputation, in my opinion this will be the reason for a massive decrease in active/new users on the platform over the next few months, but the fact that a fair amount of people also profited from this situation I can also see them rebounding, but only if they put a plan in place to prevent having to market manipulate again, at the very least.
Saying that, a business that did not have some sort of plan in case of said situation happening anyway are showing how viable & useless they will be in the long term, but Robinhood launched in 2015 which is recent, but this does not spare them any blame. In the short term, they will still maintain users and remain viable due to the fact that the stocks they offer are so general and cover many different sectors, which could keep them afloat in the meantime. Crypto’s are also becoming mainstream each day and the fact that they are offered on said platform also gives them a boost in the right direction, but if they suffer more outages this will lead to that aspect being overshadowed, and with bitcoins current volatility I cannot say I have such confidence in robin-hood to avoid such a situation if it was to happen again.
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