>Oh and uh short burn of the century comin soon. Flamethrowers should arrive just in time.
-Elon Musk
Oh Elon, sorry to steal your thunder. But GME will make TSLA vol look like TLT. Jeff haunting your every accomplishment yet again.
I’m back with the final warning bell. The next time I post in 2021 will be to recap the squeeze’s results and post gain porn along with u/Deep_Fucking_Value, u/SIR_JACK_A_LOT, u/Tomatotowers, and more. This is the last stop before the moon mission.
It’s currently not too late. But after Q3 earnings on Dec 8th, it will be. And of course, as always, not financial advice. Just for bragging rights and entertainment. Here goes:
Here’s a comprehensive GME overview for all new and returning WSB-monkeys. Sit down and grab some tea. This is a long one unlike the previous posts.
GME Overview:
The GME story can be broken up into 2 main theses. The first is a deep value play which has credibility all on its own. The second is an infinity short squeeze like we’ve never seen before in history, which has credibility all on its own. When combining the two, you get the trade of a lifetime.
In all my (albeit limited) days, I have never EVER seen a trade set up like this before. I’ve pored over every source of historical finance material I can get my hands on, and still have nothing to reference to. IMO, this will look more like the 2008-MBS bet, or the Ackman 2020-COVID “Hell is coming” bet, than TSLA, OSTK, KBIO, or VW.
Just a fucking face-ripping, out-of-nowhere, legendary-HOF-ticker bet that will bankrupt some funds and get people fired - and of course, with no community other than WSB’s name next to it in the history books (and if I could pencil in our lovely GME discord and u/RoaringKitty’s YT stream).
Let’s begin.
Act 1 - The Set Up:
Q: Why is GME so heavily shorted in the first place? Why are we betting the long? Aren’t they going bankrupt ala Blockbuster? If not, are we just trading this short term like a HTZ/CCL meme stonk?
A: NO. This is a fundamentally solid deep value play at its core.
First let’s go back a few years. We must give the shorts due credit in order to understand where we are now. GME has been profitably shorted since 2013 when the market correctly bet on the digitization of video games and spread of mobile gaming. Some data here:
- GME sales have plunged from $9.5 billion in fiscal year 2011 to $6.4 billion in fiscal year 2019.
- GME Annual EBITDA has dropped from $839 million in fiscal year 2011 (before the last console cycle) to only $111 million in fiscal year 2019.
- Net income has fallen off a cliff from $339 million in fiscal year 2011 to a staggering loss of $470 million in fiscal year 2019.
- In the two most recent quarters alone, GME lost another $277 million.
The shorts are betting on $0.
However, in the last 12 months, GME has shown that their terminal velocity does not lead to bankruptcy. GME has a strong balance sheet. Cash on hand is worth over $12 a share. Net cash is worth over $5 a share and is FCF positive (nixing the bankruptcy thesis). They also paid off $125M in debt last month just to show Moody’s they are healthy due to their incoming console cycle FCF (which may lead to possible bond upgrade, enticing more institutional investors).
So give the shorts credit. They had a legitimate case until the last 12 months, when George Sherman (CEO), Reggie Fils-Aime (ex-Nintendo, current GME board member), and others have been conducting a phenomenally well executed turnaround.
That explains why we currently have ~70M shares short out of ~65M shares outstanding - but they’re all now caught on the wrong side of the trade.
In case the severity of the short interest hasn’t hit you yet, there is a bigger market for shorting GME than the business of GME itself. This is not eve