GameStop

Why did GameStop Stock Rise in After-Hours Trading?

GameStop looks to enter the world of NFTs through the creation of a new virtual marketplace, but will this move offer value to investors?

GameStop (NYSE: GME) trended skywards in after-hours trading yesterday following news that it looks set to develop a digital marketplace for non-fungible tokens (NFTs). The company is also poised to establish partnerships with two cryptocurrency companies to develop games revolving around NFT technology.

Will this be enough for the meme stock to pivot away from its core business of video games?

What is GameStop doing?

A report from the Wall Street Journal is what set this all in motion, with the media outlet reporting that GameStop had hired a group of over 20 people to develop this virtual trading hub. A move into the NFT and crypto space would mark quite the gamble for the company, but a necessary one amidst widening losses and declining game-related revenue.

The stock, down over 25% in the past month alone, needed to take decisive action to quell the large number of investors seemingly losing patience with the company. Following the publication of this news, the share price surged over 20% in after-hours trading.

While seemingly out of the blue, the move does make sense for GameStop. The videogame industry already contains a wide variety of virtual goods that are bought and traded liberally. NFTs are a natural extension of this concept of owning virtual items. As such, a videogame company such as GameStop expanding into this space should not come as a surprise.

What does this move mean for investors?

This move marks an interesting one for investors. On one hand, it shows that GameStop is willing to pivot to try and develop the company into something more than just a videogame marketplace. On the other hand, NFTs are still very much in their infancy and may be nothing more than a passing trend.

In an attempt not to get left behind, as it did with computer game downloads a decade ago, GameStop is investing heavily in getting in on the ground floor with NFT technology. This move, at its core, is an inherent risk. Investors should take note that other gaming companies – such as Ubisoft Entertainment – have already announced plans to enter the NFT space. This might show that the move is one being considered by the entire industry. 

However, until GameStop can develop this marketplace fully and show that it can be profitable enough to offset its current losses, investors might be better off steering clear. GameStop stock is extremely volatile and can swing wildly as a result of even the most minor pieces of news. Potential shareholders should continue to analyze the fundamentals of the company, and hold off on investing until we see some wholesale changes in how the company produces and maintains money.

Read More