Following the footsteps of Kodak or BlackBerry

The stock market is doing extremely well currently and seems poised to challenge its all time high. People are happy and the sentiment is very euphoric.  With the volatility at the low end, complacent is the tone of the market. This is usually the time a black swine may hit out of blue, causing significant panic. BE CAUTIOUS! In this kind of situation, having some short positions is very wise and prudent to hedge against the potential sudden panic selling, which may come any time now. One short candidate could be GameStop (GME). 

 

GME is a US video game, wireless services and consumer electronics retailer with more than 4,000 locations across the United States. While you may think gaming is a great nowadays, especially for young people who are generally insatiable to games, the key is how the business is managed by the retailers. GameStop had some great years in the past, with a big edge over other video game retailers due to its unique  omnichannel program. This program gives video gamers the option of buying games online then rushing to the store to pick up their purchases in person rather than having to wait three days for shipping. It may not sound a big deal, for gamers this is traditionally a huge advantage as they often cannot wait and want to have immediate access to the games. This was a great business model until recently when digital downloading becomes more and more available, a trend only going much stronger, which will not look back again.  “Buy it now get it now” is a new norm in the gaming business. Recent stats have shown that sales of digital games have surpassed video games, which will for sure continue with the momentum. In a few years from now, video games may just be a word in history. Obviously game retailers are either adapting to the new trend or die soon. Unfortunately GME appears to still very much stick to its obsolete business model relying on physical delivery of games as its main selling approach. This can be seen In the company’s Q4/2015 report, in which the emphasis was still focused on the company’s expansion of physical locations instead of riding the digital revolution. This was consistent with their lukewarm digital sales that increased just 9.7% year-over-year. In contrast, global digital sales for games jumped 11% last October alone.

 

Of course the management of GME may drastically change their mindset to go with the trend but even this were the case, GME might not have sufficient cash to do so as their debt load is substantially higher than their cash on the book, not mentioning that there is little sign that their CEO and management have really the gut to totally change and adapt. This certainly reminds me of what happened to Kodak about a decade ago when it could not adapt to the new trend of digital camera and photo and has been wiped out completely in its existence. Similarly what is still going on with BlackBerry, once a dominating company for the smart phone but has failed to swiftly adapted to the new trend in the smart phone sector initiated by Apple. Unless magic occurs, I think BlackBerry is on its way to death soon.

 

I bet this is likely the path GME is taking based on what we can see at the moment. Shorting GME may likely be quite profitable in the months ahead!