We’re just over a year removed from the shocking short squeeze that upended Wall Street. In late January 2021, GameStop (NYSE:GME) stock surged from around $50 to nearly $500 in the span of a few days, opening investors’ minds to a whole new type of trade. If enough people started to buy a company’s stock , it seemed that the sky really was the limit for those shares.
However, the excitement about plays like GameStop and AMC (NYSE:AMC) has now fizzled. Predictions of subsequent short squeezes and trips to the moon have failed to materialize. In fact, as the stock market as a whole has corrected and speculative stocks have plunged, names like AMC stock and GME stock have declined sharply as well. As it turns out, fundamentals actually do matter, and GameStop’s fundamentals are very poor.
Where’s the Turnaround?
For all the excitement about Ryan Cohen joining GameStop and trying to turn it around, the company has not made much progress.
The video-game industry had a record year in 2021, as the sector’s sales climbed 8%, exceeding $60 billion. GameStop, however, is generating large losses, and its revenue remains far short of its levels from a few years ago.
Analysts, on average, expect the company to report major losses in 2022, and their mean estimates call for its revenue growth to decelerate. Overall, for all the hype about GameStop, the company’s business appears to be struggling as much as ever.
No Reason for Optimism
Things aren’t likely to get much better for GameStop. For years, the company relied on secondhand game sales to drive crucial, high-margin revenue streams. However, this business is slowly becoming obsolete.
That’s largely due to streaming services that specialize in video games. Companies such as Microsoft (NASDAQ:MSFT) are launching successful streaming channels, making it less and less important to actually own games. Just as Netflix (NASDAQ:NFLX) eliminated the need for physical DVDs and Spotify (NYSE:SPOT) replaced CDs, gaming streaming services (along with digital download platforms like Steam) are likely to replace GameStop eventually.
Adding to that transition is the consolidation in the gaming industry. That is, in order to broaden their product offerings, companies are merging with each other. Microsoft’s acquisition of Activision (NASDAQ:ATVI) will be particularly problematic for GameStop.
Activision has created many of the best-selling game series of all time. Now all of those games will be under Microsoft’s control and can quickly be added to the software giant’s streaming system, cutting out the middleman i.e. GameStop.
No Monopoly on NFTs
A big focus for GameStop recently has been cryptocurrency and non-fungible tokens (NFTs). But that initiative is unlikely to be very successful. A group of investors backed by the controversial internet marketer, Tai Lopez, bought Radio Shack’s intellectual property and are hoping to create a cryptocurrency and NFT ecosystem with the IP. While they’re at it, why not turn Kodak and Blockbuster into crypto plays as well? Kodak, after all, had its short-lived KodakCoin project.
My point is that there are many other companies which will be able to easily compete with GameStop in the cryptocurrency space. It’s not hard to grab some IP that appeals to millennials and use it to launch a cryptocurrency or NFT project. A much harder challenge. however, is making such a project impactful on society or financial markets.
GameStop was one of the first “old economy” companies to embrace cryptocurrency as a marketing tool. But many firms have followed in its footsteps, and GameStop’s potential first-mover advantage in the space has faded.
The Verdict on GME Stock
GameStop became a fascinating story in January 2021. It pitted a bunch of renegade traders against some hedge funds and market makers in a compelling clash. The first season of GameStop versus Wall Street was very dramatic.
But like a TV series that has gone on for way too many years, GME stock is no longer such a compelling story. Meme stocks have plunged, and the shares of brokerage firms such as Robinhood (NASDAQ:HOOD) have collapsed as their trading activity and profits have dried up.
And, most importantly, the possibility of a short squeeze ended months ago for GameStop. By now, anyone shorting GME stock who was going to cover their positions already did so ages ago.
GameStop at this point is a struggling video game retailer. It has some cash, which gives it a fighting chance to launch a new business model.
So far, however, its efforts in crypto and NFTs have been profoundly underwhelming. And the e-commerce sector is losing steam in general; the shares of Ryan Cohen’s original company, Chewy (NYSE:CHWY) have crashed. If GameStop was supposed to be the Chewy of video games, that’s not such an appealing goal now.
GameStop had a sensational run, but it’s over, and it’s time to move on.
On the date of publication, Ian Bezek held a long position in SPOT stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.