To put it bluntly, GameStop hasn’t been doing great. Stocks have been plummeting and it seems like almost every week we hear about another mass layoff. Most people believe that GameStop isn’t long for this world and will soon go the way of Blockbuster. However, GameStop has one unlikely believer: Michael Burry.
Michael Burry is a hedge fund manager who rose to fame during the American housing market crash. Movie buffs might remember him as a featured player in The Big Short, a fictionalized version of the events where he was portrayed by Christian Bale. A few years before the big crash, Burry realized just how unstable the American housing market was and predicted a crash would occur around 2007. He decided to put a lot of money into a credit swap market, essentially betting against the entire American housing market. His firm made an enormous profit once the crash inevitably happened.
Long story short, Burry made a lot of money because he knew that a lot of people wouldn’t be able to pay off their loans.
But why GameStop?
In a shocking move, Michael Burry’s firm, Scion Asset Management, now owns 3 percent of GameStop’s shares. GameStop’s shares dropped to almost one-fourth of their value this year, so Scion decided to snag them while they’re cheap. With this bold move, GameStop’s shares promptly spiked more than 11 percent. Burry believes that, despite the grim outlook, GameStop has a “balance sheet [that’s] actually in very good shape.” He also noted that both the PlayStation 5 and Microsoft’s Project Scarlett will be able to use physical discs, meaning that brick-and-mortar stores will still have use even in the next generation. He seems to think that 2019 will be the final year of GameStop’s downward spiral and it will pick right back up within the next year.
Of course, there may be some fault to his argument. According to Dr. Serkan Toto, Burry’s argument seems to forego one important variable. The gaming industry is greatly shifting more toward online sales by the year. Digital sales are drastically more important to publishers now than they were during GameStop’s heyday. Free-to-play games and digital archives of older games are also very noticeable nails in GameStop’s coffin. So despite Project Scarlett and the PlayStation 5’s abilities to play physical copies, that doesn’t mean that the trend of digital sales is going to stop.
All in all, this is a very risky move on Burry’s part. However, since he was able to see an entire financial collapse and personally pocket almost $100 million from it, maybe he’s seeing something we aren’t.