Users of the online forum Reddit have made waves on Wall Street this year by demonstrating the impact that collective opinion can have on stock prices. The social platform helped provoke several short squeezes in early 2021, and has also contributed to a huge growth spurt for the Dogecoin cryptocurrency over the past few months.
GameStop (NYSE: GME) and Tesla (NASDAQ: TSLA) have been making a splash on Reddit lately. Given the track record of this online community, it is worth taking a closer look at both of these promotions and understanding in more detail why they are getting so much attention. Here’s what investors need to know.
GameStop is a video game retailer. He manages 4,816 stores in North America, Europe and Australia.
Given the company’s heavy reliance on retail sales, the pandemic has had a fairly negative impact on it. And while online e-commerce sales grew 175% in fiscal 2020, total revenues fell 21%, gross margins fell 480 basis points, and the company posted a net loss of $ 215 million. In fact, GameStop hasn’t been profitable since fiscal 2017 (GAAP reporting).
To stabilize its business, the company announced a multi-year transformation plan in 2019. Since then, GameStop has closed 1,014 stores and doubled its digital-centric business segment. It must be said that in 2020, e-commerce sales have improved significantly, reaching 34% of total sales (up from 12% in the previous year). But GameStop’s efforts still seem too small, too late.
Back in 2009, 80% of video games were sold as physical discs and only 20% were sold digitally. By 2018, those numbers had reversed and digital sales reached 83% of the total. From this point of view, GameStop is well behind the general trend, and its business seems to be stuck in the past.
What’s more, creators of popular gaming platforms such as Microsoft and Sony have launched successful cloud gaming services that reduce user demand for GameStop, and these services help both companies operate orders of magnitude more profitably than GameStop.
Unsurprisingly, GameStop’s financial performance has deteriorated in recent years.
|Revenue, $ billion||8.5||5.1||(sixteen%)|
|Free cash flow, million $||321.5||63.7||(42%)|
Looking ahead, the future of GameStop is uncertain at best. This is the main reason why I would not invest my money in these stocks.
Tesla is a leading electric vehicle manufacturer (EVS) worldwide. Despite the “headwinds” caused by the pandemic, the company has done well last year.
Tesla delivered 499,550 vehicles in 2020, more than four times the 2019 level of 112,000 deliveries. This helped Tesla capture 16% of the EV market (the closest competitor is Volkswagen with 13% market share).
Last year Tesla ramped up Model Y production at its U.S. plant, and at its China plant, it launched Model Y and increased Model 3 production to 5,000 vehicles per week. Notably, Tesla’s focus on production efficiency continued to pay off as the company achieved an operating margin of 6.3% in 2020, becoming the industry leader in that metric.
Citing efforts to further expand production capacity and localize production as key performance drivers, the company’s management considers this advantage to be quite sustainable. To this end, Tesla will begin production of the Model Y at two new facilities in 2021: Gigafactory Berlin in Germany and Gigafactory Texas in the United States.
In the first quarter of 2021, Tesla continued to impress with its results. The company achieved record production and shipments without ever launching a S or X. At the same time, operating margins improved 100 basis points year-over-year (reaching 5.7%). And Tesla maintained its leading position in the market, still having a market share of 16%.
Overall, Tesla has benefited from strong demand. But the company’s bottom line is also improving thanks to its scalable approach to manufacturing.
|Indicator||2017||Q1 2021 (TTM)||CAGR|
|Revenue, $ billion||11.8||35.9||41%|
|Free cash flow, billion $||(3.5)||2.4||–|
Several catalysts should keep Tesla’s business on an upward trajectory. In the short term, the company plans to begin shipping the redesigned Model S, a vehicle that boasts the industry’s best range of 402 miles. The return of this high-end model could help boost the average selling price, which fell 13% in Q1.
Likewise, the Model 3 recently became the best-selling premium sedan in the world, overtaking Daimler’s BMW 3 Series and Mercedes E Class. Tesla predicts a similar success for the Model Y, with company executives expecting it to become “the world’s best-selling car.”
What’s the bottom line? Despite the current huge revaluation, there are many attractive features in Tesla stock. Although, to be honest, I would not open a large position on them now. I believe that this company should definitely be kept under review and only bought after a really serious pullback in prices.
Review from 06/10/2021
You can share this article on your page in social networks: