Nothing. In fact, if Gamestop are genuinely not a viable business they could announce that tomorrow, their shares would be suspended and the shorts would win.
I'm not going to bet against this happening.
Shares in a nutshell:
Bob and Daphne agree to start a business.
Company is established. It has a number of shares - lets say 100.
5 of those shares are owned by Bob, and 5 are owned by Daphne.
They start well and get investment from a venture capitalist, who in return gets 30 shares. Let's say the VC invests $30; they've paid $1 a share.
The company is ticking along nicely but wants to raise further funds, so they approach the stock market and ask if they can be listed. The stock market shrugs and agrees.
When they're listed, an Initial Public Offer (IPO) is put out, offering sale of the remaining 60 shares at an agreed price; let's say $10/share
The company goes live on the stock market. People that bought into the IPO pay that agreed price, raising $600 (i.e. $10 x 60 shares), which goes to the company
The VC can now sell their 30 shares at $10 each as that's the current market price, making them $9/share profit, or a 900% ROI. This actually happens. (They also lose 100% of their investment in many other companies; VCs are all about risk management)
Bob and Daphne can also now sell their shares, or can hold them, and the people that bought the 60 shares (and the VC's 30 shares) can also trade or hold them
However: The VC, Bob, Daphne and everybody else is now selling their own personal property (i.e. the shares they own) so the proceeds of that sale go to them, not to the company.
This means that if the company stock price goes from $10 to $1000 then the people holding those shares get a good return, but the company still only has that initial $630 it made from the VC and the IPO
Where it does matter to the company is if they want to raise more funds. They can issue more shares (diluting the holding of existing shareholders, which makes them unpopular because it lowers the share price) or borrow money (which has a complicated relationship to the stock price, but in crude terms, higher price means easier borrowing)
if the company was formed with 200 shares, not 100, it would actually still have the ability to 'issue' another 100 shares; basically sell them on the market at the current price. That would raise funds, at 100 times the current price. But that's a special situation which..
What this boils down to is that Gamestop will only benefit from the improved stock price if
they can convince someone that lending them money against their higher market capitalisation (erm, market capitalisation is 'market cap' which is the number of issued shares multiplied by the current price - it's the number people quote when they say Apple is a trillion dollar company) is a good investment. Their current revenue levels, future revenue expectations and profit margins mean that this is not going to happen
they have non-issued stock that they can now issue. The chances of this being the case are close to zero
If anything it's made it more likely that Gamestop will collapse. One way a company can survive is by being bought by someone that thinks there's value if changes are made. This could be as simple as asset stripping (see the films Pretty Woman and Wall Street for details on that one), through merger with a comparable firm (letting you benefit from shared corporate functions, supply chain logistics, etc) or just running the business better.
Raising the share price makes Gamestop more expensive to buy, which means that it's harder to get a return on that investment through any or all of those options, so there's less chance of someone now taking the plunge. They're better off waiting until the share price drops again after the short positions have closed; that may be too longer for Gamestop to continue as a 'going concern' (accounting term).
I think I've probably typed too much for midnight given nobody else is going to read this, so I'll stop there.
I understand this now.could anyone tell me what this does to the company of gamestop in the long term? Does it push their bankruptcy back?
Nothing. In fact, if Gamestop are genuinely not a viable business they could announce that tomorrow, their shares would be suspended and the shorts would win.
I'm not going to bet against this happening.
Shares in a nutshell:
Bob and Daphne agree to start a business.
Company is established. It has a number of shares - lets say 100.
5 of those shares are owned by Bob, and 5 are owned by Daphne.
They start well and get investment from a venture capitalist, who in return gets 30 shares. Let's say the VC invests $30; they've paid $1 a share.
The company is ticking along nicely but wants to raise further funds, so they approach the stock market and ask if they can be listed. The stock market shrugs and agrees.
When they're listed, an Initial Public Offer (IPO) is put out, offering sale of the remaining 60 shares at an agreed price; let's say $10/share
The company goes live on the stock market. People that bought into the IPO pay that agreed price, raising $600 (i.e. $10 x 60 shares), which goes to the company
The VC can now sell their 30 shares at $10 each as that's the current market price, making them $9/share profit, or a 900% ROI. This actually happens. (They also lose 100% of their investment in many other companies; VCs are all about risk management)
Bob and Daphne can also now sell their shares, or can hold them, and the people that bought the 60 shares (and the VC's 30 shares) can also trade or hold them
However: The VC, Bob, Daphne and everybody else is now selling their own personal property (i.e. the shares they own) so the proceeds of that sale go to them, not to the company.
This means that if the company stock price goes from $10 to $1000 then the people holding those shares get a good return, but the company still only has that initial $630 it made from the VC and the IPO
Where it does matter to the company is if they want to raise more funds. They can issue more shares (diluting the holding of existing shareholders, which makes them unpopular because it lowers the share price) or borrow money (which has a complicated relationship to the stock price, but in crude terms, higher price means easier borrowing)
if the company was formed with 200 shares, not 100, it would actually still have the ability to 'issue' another 100 shares; basically sell them on the market at the current price. That would raise funds, at 100 times the current price. But that's a special situation which..
What this boils down to is that Gamestop will only benefit from the improved stock price if
they can convince someone that lending them money against their higher market capitalisation (erm, market capitalisation is 'market cap' which is the number of issued shares multiplied by the current price - it's the number people quote when they say Apple is a trillion dollar company) is a good investment. Their current revenue levels, future revenue expectations and profit margins mean that this is not going to happen
they have non-issued stock that they can now issue. The chances of this being the case are close to zero
If anything it's made it more likely that Gamestop will collapse. One way a company can survive is by being bought by someone that thinks there's value if changes are made. This could be as simple as asset stripping (see the films Pretty Woman and Wall Street for details on that one), through merger with a comparable firm (letting you benefit from shared corporate functions, supply chain logistics, etc) or just running the business better.
Raising the share price makes Gamestop more expensive to buy, which means that it's harder to get a return on that investment through any or all of those options, so there's less chance of someone now taking the plunge. They're better off waiting until the share price drops again after the short positions have closed; that may be too longer for Gamestop to continue as a 'going concern' (accounting term).
I think I've probably typed too much for midnight given nobody else is going to read this, so I'll stop there.
Thanks!