GameStop: Short Interest Still 139% — Short Squeeze Not Over— GME Could Be A $50 Billion Dollar Company
„I should have sold when it hit $150.“
– some paper handed investor on Monday (probably)
This was a great monday for GameStop. $76, highest close ever. But why does it feel so bad? Why am I reading these same posts over and over again on Twitter and Reddit? „I’m in the red“, „Is the short squeeze over?“, „Whats the next GME to YOLO my life savings in?“ What could it be? Ah yes, GME reached over $150 at one point, then lost nearly half of that…
This is annoying, I know. I bought into GameStop based on the thought „come for the squeeze, stay for the long term perspective.“ Neither of them have materialized yet.
I believe, this will be at least a $50b dollar company within the next 2–3 years. And the journey has just begun. We are nowhere near this destination.
First things first. On a share price perspective, GME closed at an all time high. But these guys have brought back a shit ton of shares in the last years. So, when we’re looking at the market cap we see this: $5,3b. The stock has to double just to reach all time high valuation…
Considering Chewy.com founder and investor Ryan Cohen joining the board with two of his Chewy buddies, how GameStops online sales are growing and how big the TAM is — a double in market cap should be the bear case as of today and it shouldn’t take too long for the market to realize that. This would bring us to roughly $140 a share today. As you all know we printed so much money in the last couple of years, it’s not even funny anymore — but good for investors.
All things equal keeping inflation in mind the market cap today should be round about $13b, bringing the share price to roughly $185.
This is the bear case.
I don’t know what happens tomorrow. Or next week. Or next month. The funny thing is, since all this madness started last week, we haven’t gotten any new information, except from Ryan Cohens nut emoji tweet with the dumb and dumber gif saying „So you’re telling me there’s a chance“ on January 17.
Meaning: There was no real catalyst for all this growth in the past days.
Imagine what will happen when RC lays out the plan for GameStop. When he says what he wants to do. How he wants to expand into gaming PC parts and what not. How he wants to capitalize on these millions of PowerUp users. What he plans for online…
I will quote WSB User u/Kabdckmd who did a brilliant DD (you should read it), looking at GME from a VC perspective:
„If Ryan Cohen can transform GME into a subscription-based membership model where in exchange for your monthly fee you have a one stop shop to all things gaming discounted, you have a company that could easily be valued at a 10–30x multiple on top-line revenues. However, because most investors outside of this subreddit still view it as a traditional brick and mortar play vs. a subscription focused tech company with omnichannel growth strategies, they think a bubble is forming and are shorting it instead of buying in.“
He goes on:
„If a shift to digital first does occur, and GME becomes a subscription first omnichannel gaming company, the market cap will conservatively be 10x topline revenues.
Let’s say that stays flat next year at $5B. This market cap (matching industry standards) should for an appropriate valuation for a growth stock be $50B.
I know this sounds insane. But if Ryan can complete the transformation he is hoping for this is a very conservative valuation. A $50B market cap would be $800 a share right now. Again, this assumes Zero topline revenue growth. If revenue begins to grow again 10x will be unrealistic and the multiples will get far higher.“
Short Squeeze
I think its idiotic to assume this was the short squeeze. According to financial analytics firm S3 Partners, the short interest is still extremely high — at 139% of float, down only from 141% last Thursday, as zerohedge.com notes, according to Bloomberg:
The still-high level of bearishness indicates that even though shorts are being squeezed out of their positions, new traders looking to bet against GameStop are rushing in, according to Ihor Dusaniwsky, S3’s managing director of predictive analytics. That’s occurring even as the cost-to-borrow shares for the purpose of selling them short spikes — the stock borrow fee is currently 23.6%, S3 data show.
“We are seeing a short-squeeze on older shorts who have incurred massive mark-to-market losses on their positions, but are seeing new shorts coming in and using any stock borrows that become available to initiate new short positions in hopes of an eventual pullback from this stratospheric stock price move,” Dusaniwsky told Bloomberg.
You have to keep in mind. This is a battle. WSB vs. Wall Street. The small investor vs. the big hedge fund. Melvin Capital, one of the most successful hedge funds on Wall Street in the last years, basically got steamrolled by WSB — since has gotten a $2.75BN “bailout” from Hedge Fund Giants Citadel and Point 72.
The last couple of days, WSB was in every mainstream media. They’re painting a bad picture. WSB, the gamblers (which partly is true). They think, this is a joke, all these small investors got in to make a quick buck, without giving a single fuck about the underlying business, basically saying „this is luck, these idiots don’t know what the fuck they’re doing“. They’re seeing GME as this old failing retailer, with no chance to survive. I don’t believe that. In fact, a lot of people don’t believe that, eg Ryan Cohen.
I am leaving with that. Ryan Cohen build Chewy from scratch. Now he’s doing it again but bigger — on a great foundation with thousands of stores and triple digit growing online sales. I’m in!
Disclaimer: This is no financial advice. Do your own DD.