A week of news covering the intersection of business and gaming / esports, all in about one minute – everything you need to know from the “profit of esports” himself.
034 – January 31, 2021
This week, GameStop was all anyone could talk about. However, it was not a gaming story or even a business story. This was more of a social story. Yes, some hedge funds suffered huge losses at the hands of retail investors and that’s a good thing given the size of their short positions were just too big. It’s also good that hedge funds feel some real fear every so often to keep them in check. Short sellers in general should not be the enemy though. They are the garbage collectors of the markets and are a necessary piece of the ecosystem. And while a populist uprising is the headline, the reality is more complex. For every hedge fund that lost money on GameStop, there will be 3 others that make a killing on the stock’s volatility. Furthermore, the hedge funds that lost money were likely managing a lot of retirement funds, endowment money, and pension funds. This will hurt lots of everyday people. And finally, GameStop’s business is still really terrible. Feelings of nostalgia aside, this is a gaming company on a clear path to bankruptcy. That means that a lot of retail investors holding the stock are going to lose a lot of money when it all comes crashing down. I outlined a clear winning strategy for GameStop long ago, and not listening to the profit is a sure way to fail.
Tencent ended 2020 with the most M&A deals of any studio in the gaming space. They invested in 31 gaming companies, an increase of 300% over 2019’s tally. The majority were in other Chinese companies, and their approach has shifted. Traditionally, Tencent took a conservative approach, buying up firms that have a proven hit or established product. In 2020, the company focused more on smaller or earlier stage companies. It’s likely this change is because of increasing competition in the gaming space from Alibaba and Bytedance, but Tencent is definitely in no danger of losing their #1 position in the games market right now.
Finally, Microsoft made another confusing misstep when they doubled the price of their Xbox Live service, and then reversed the increase after gamer outcry. They are clearly trying to move customers to their Xbox Game Pass product. It’s not a bad idea, but the execution and communication here were some of the worst I’ve ever seen. Very disappointing from Microsoft.
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