How Reddit Made GameStop Worth $17 Billion Dollars

ROI Overload Business, Tech & Finance Newsletter

  
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So before I get in to the actual meat of the newsletter.

I want to drop a little social media wisdom.

This is some very useful social media knowledge.

But in all seriousness.

If you want to dominate any social media platform… just learn what the newest feature on that platform is.. and use it.

For example, Youtube shorts are getting massive traction.

But it works with all social platforms.

I just tried out LinkedIn’s newest “polling” feature.

In 24 hours, I got 123,904 impressions.

Insane.

Moral of the story.

Test new features and find a way to use them with your content.

The social platforms will always give these new features more organic reach when they first launch.

All right, here’s what’s coming up this week.


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📈 Case Study: How Reddit Made GameStop Worth $17 Billion Dollars

GameStop was a household name back in the 90s. It was a significant cornerstone of the video game industry and if you were a kid back then, GameStop was the one-stop-shop for all things gaming.

Now, over two decades later, brick-and-mortar retailers are a dwindling breed as everything makes its way onto the internet. However, earlier this year, the internet turned out to be the force that pushed GameStop back into the spotlight.

The Company’s Beginning

Before the dawn of the internet and online gaming, GameStop served as a cultural touchpoint for gamers. GameStop traces its roots to Babbage's, a Texas-based software retailer founded in 1984. Over the next decade and a half, the company went through multiple mergers and was finally acquired by the American bookselling giant, Barnes & Noble, in October 1999 – this is when the GameStop brand was launched.

By 2001, GameStop had thousands of stores across America where gamers gathered to buy the latest releases and to meet other like-minded individuals. The brand introduced revolutionary new ideas, like their trade-in program, which allowed customers to sell their old games for credit.

It was during this time that Sony and Microsoft would go on to launch the Playstation 2 and the Xbox, respectively. These consoles, and their immediate successors, played a notable role in GameStop’s fortune – something that’s clearly reflected in their stock price.

See how the stock price has fluctuated with each new generation of game consoles.

Going Public

On February 13, 2002, GameStop went public and raised $325 million in its initial public offering. In 2004, it became an independent entity and, in the following year, bought rival entity EB Games for $1.44 billion, making it the most prominent game distributor globally. A year later, the company had a total of over 4,400 outlets operational, worldwide. These stores would eventually begin holding regular events to coincide with releases.

GameStop’s stock reached an all-time high in 2007. As part of its continuing plan to expand internationally, the company acquired Micromania, a leading video game company in France, in 2008. GameStop, which previously owned no stores in France, now had 332 French video-game stores

The Rise Of New Competition

As the economy began to improve in early 2010 following the financial crisis, it brought with it several new players in the video-game space, As the gaming industry shifted to a digital landscape, GameStop tried to adapt by selling downloadable content. However, the game makers themselves began offering their products for digital consumption, eliminating the middleman – GameStop.

The Internet, unsurprisingly, became a universal gaming platform. For instance, in 2009, Zynga launched Farmville and CityVille on Facebook, and these were massive successes. Four years later, the Xbox One and PlayStation 4 were launched, both offering digital storefronts. GameStop tried to keep its conventional brick-and-mortar system alive and purchased retailers like Spring Mobile, Simply Mac, and even AT&T stores in an effort to diversify.

The Fall of GameStop

The decline in GameStop’s reign at the top first came to notice in 2017 when the company reported a 16.4% drop in sales for the 2016 holiday season. GameStop was forced to close multiple store locations over the next couple of years and its failure to comply or capitalize with digitization soon led to its downfall. 

For the 52 weeks ending on February 2, 2019, GameStop reported a record-breaking net loss of $673 million. Around this time, the company also underwent multiple changes to senior management. However, shortly after, COVID-19 hit the United States, forcing all of its stores to close and GameStop’s shares sank to all-time lows – at the start of the fiscal year, GME was worth just $4.22 per share. 

The company reported that the pandemic resulted in digital sales growing by 519% – but, its retail sales dropped by over 30% from the prior year. GameStop reported a $165 million loss, in comparison to $6.8 million for the same period in 2019. 

A New Hope

GameStop was almost all but forgotten. However, the internet had other plans. Around this time, someone on the (now popular) r/WallStreetBets, Reddit forum, argued that GameStop was underpriced by the market. Soon, the idea that r/WallStreetBets would take over GameStop came to be, albeit as a joke – but, soon things turned serious. 

The people in the community began to initiate a short squeeze.

In a short squeeze, investors buy up stock, raising share price to the point where short-sellers — who are betting against the stock price appreciating — need to buy the stock to cover some of their losses, which can send the price even higher.

This resulted in GameStop's share prices soaring by over 1,500% in just over two weeks – they reached an all-time high of $483.00 on January 29, 2021.

Another surge in prices came shortly after when Elon Musk tweeted “Gamestonk!", about r/wallstreetbets, with a link to the subreddit. 

Later that year, the board of directors also saw some changes, including a new Chairman, CEO, and CFO. Ryan Cohen, the Chairman, believed GameStop had the potential to become a technology-driven leader in the gaming industry, and he urged the board to shift the company’s focus towards that goal. 

The company’s stock price was also boosted by Cohen's desire to shift away from brick-and-mortar retail. 

Breaking Wall Street 

Up until January 2021, GameStop was disregarded as a brand that once was.

However, in the eyes of some, this made it the ideal option to short. The amateur traders of Reddit noticed big investors were betting against GameStop stock prices and shorted the company’s shares.

There’s no clear reason as to why the Reddit community decided GameStop was the stock they were going to short-squeeze.

It was perhaps a mix of the nostalgia that comes with the brand, or the universal appeal of making rich people (short sellers aka investors) potentially lose massive amounts of money,

As a result of the squeeze and the subsequent rise in value, some of the most prominent hedge funds in the world lost billions.

On the flip side, it made some amateur investors millions. 

The Sudden Surge In Share Price Is Promising, But Can It Save GameStop? 

Unfortunately, GameStop itself did not reap the benefits of the rally, and the bubble the internet created around it eventually burst.

At the moment, GameStop is nearly $500 million in debt and has over 5,000 stores worldwide.

In February 2021, GameStop hired ex-Amazon Engineering Leader, Matt Francis, as its CTO (Chief Technology Officer) to guide the company towards its new vision.

The surge itself may not have saved GameStop, but it’s shone the company a new light and has been an exemplary example of what the internet is capable of.

6 Lessons From GameStop

  1. Never underestimate the internet. Building an incredible community that you can leverage can make, or break a business.

  2. Whatever your business is, and however successful you are, you always have to stay ahead of the curve.

  3. Be careful what you invest in. A strong stock price and rally is not always indicative of a strong company.

  4. The future of any successful business must incorporate a digital component.

  5. A successful business is a business that is always reinventing itself.

  6. Always seek out new ways future proof yourself.


💻 SaaS Of The Week: Bypass Paywalls

One of the best working & most useful plugins I’ve ever found, Bypass Paywalls is the chrome extension we all wish we had when we catch an interesting headline in the news, but really only care about checking out that one article.

Check It Out

It’s a GitHub repo, so you need to follow the instructions to install it, but with a little patience, you’ll get it.

Scroll down the GitHub page and you’ll see step-by-step instructions.


🎧 Things You Should Listen To: How To Market Bitcoin And Crypto With Aubrey Strobel, Head of Communications at Lolli

Aubrey Strobel is the Head of Communications at Lolli, a platform where you earn free Bitcoin while shopping online.

She’s been responsible for building out a marketing strategy for bleeding edge tech (bitcoin app)....

In a market that's constantly evolving.

Not easy.

This is an interview you’ll want to listen to.

She discovered crypto in 2016 and worked for a few different blockchain projects shortly after wrapping up her journalism degree.

She is a regular contributor for Coindesk, has had her works featured by NBC, speaks globally on crypto and blockchain, and today, both Lolli and Aubrey are household names within the crypto scene.

This is what we get into.

  • 02:50 - Aubrey’s origin story.

  • 07:42 - Transitioning from journalism to crypto.

  • 12:36 - Leading the charge in the crypto space.

  • 15:15 - The marketing play for a brand new crypto blockchain project.

  • 24:19 - Lolli’s social media marketing strategy.

  • 28:05 - The responsibility of being an educator in the blockchain space.

  • 36:26 - Navigating a tumultuous market.

  • 39:17 - Lolli’s global expansion plans.

  • 41:22 - Where will Bitcoin be in 10 years from now?

  • 42:50 - Is Aubrey a Bitcoin maximalist?

  • 50:19 - The biggest misconception about Bitcoin?

  • 52:19 - Aubrey’s advice to her younger self.

  • 57:19 - Advice for young entrepreneurs.


📚 Things You Should Read: The One Minute Sales Person

Spencer Johnson is the author of the number one New York Times bestseller Who Moved My Cheese? and the coauthor of The One Minute Manager.

He’s had a few hits.

So when he writes something, it’s a good idea to skim through it, especially if it’s a pretty light read (as are most of his works).

The One Minute Sales Person is no exception to that rule.

The perfect book for someone trying to wrap their head around sales.

Get It On Amazon

And let’s face it.

Literally all of us, are sales people.

Selling a product to a customer, selling ourselves in an interview, selling a company to a potential investors, selling ourselves on a date, selling broccoli to a baby.

Sales is the art of persuasion, and this book is a quick, simple, extremely well written introduction into how to persuade.

The golden take away is this.

Never forget that between you and the end result (in selling anything) there is a person.

And let everything else you sell, be built on that premise.

It’s 108 pages, but a really great, quick read.


🧠 Scott’s Thoughts: Give It 10 Years

Success is not an accident.

It is the result of good choices we make every day.

One of these choices is the attitude to persist, persevere and never give up - no matter what the situation.

Success is the result of persistence.

We all know that success doesn’t happen overnight.

It takes years of hard work and dedication to make it.

At anything.

Persistence is the key.

It is what we need to master if we want to succeed in life.

It may seem like an oversimplification, and to assume that persistence alone, without some luck, skill, iterating and grinding, will yield a result.

But I would argue the very act of persisting every single day will yield luck, upskilling, iteration and as a result, constant effort, towards the end goal.

Even if the 10-year version of your thing (or yourself) doesn’t look exactly as you had imagined, you’ll never even get a chance to contemplate (and appreciate) on that 10 year version if you don’t show up for the previous 9 years and 364 days.

I’ve said it once, and I’ll say it again.

Do anything for 10 years.

Persist.

And then come back and tell me you didn’t gain some measure of success, proficiency or excellence in your craft.

I’d put money on the fact that you won’t.


Podcast

If you like the content in this newsletter, there’s a pretty good chance you’ll like my podcast, “Success Story”, where I unpack the playbooks of entrepreneurs, executives and other high performing individuals.

Check Out The Podcast


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-Scott

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