Tuesday, December 22nd.
9:17 a. m. New York time,
Andrew Left posted a twelve-page Short Selling report on Citron's official Twitter account,
The title only has two words - "Game Over".
The first page of the report is a comparison chart of GameStop's revenue and net profit over the past five years.
The two curves have continued to decline since 2016, with revenue falling from 8.5 billion US Dollar to 6.4 billion in 2019, and then to 4 billion in the first three quarters of 2020.
Net profit fell from 350 million in 2016 to a loss of 470 million in 2019, and a loss of 570 million in the first three quarters of 2020.
The lower right corner of the chart is marked with a line of words in bold red font--
"This is not a cycle, this is a structural decline. The console cycle will come back, but digital distribution will not go backwards."
The second page is a comparison of the number of stores.
The number of GameStop stores worldwide dropped from 7,500 in 2016 to 5,100 in 2020.
The report reads--
"Over the past four years, GameStop has closed an average of one store every two days.
The pandemic accelerated the shutdown, but even without the pandemic, the company was shrinking at a rate of 10 percent a year.
Ryan Cohen can bring e-commerce experience, but he can't change one fact--
When more and more people download the things you sell directly from the Internet, your physical store will have negative equity."
Pages three to five are the breakdown of the balance sheet.
The report pointed out that GameStop's long-term debt is approximately 420 million US Dollar, and its annual interest expense exceeds 20 million.
The company has approximately 450 million in cash on its books, but its operating cash flow has been negative for the past three quarters.
"At the current rate of cash burn, GameStop will face a liquidity crisis in the second half of 2021.
Unless new shares are issued.
Q3 Report Jefferies' 100 million US Dollar additional issuance plan announced is just the beginning--
This company needs repeated issuances to survive, and each additional issuance dilutes the interests of existing shareholders."
Pages six to eight are valuation analysis.
The report directly compared the e-commerce businesses of GameStop and Amazon.
The conclusion is that GameStop's e-commerce revenue accounts for less than 30%, and its growth rate lags far behind the industry average.
"Ryan Cohen's track record at Chewy cannot be replicated at GameStop --
Pet food is a high-frequency consumer product, and games are low-frequency entertainment products.
A user may buy ten bags of dog food a year, but he will not buy ten games a year.
The game is over once you buy it and complete it. You can make another profit by selling it second-hand.
GameStop's business model is built on physical carriers, and physical carriers are disappearing."
The ninth page is the structural analysis of Short Sellers.
Left responded positively to Short Squeeze's argument in the report--
"Some people say that the Short Selling ratio exceeding 90% means Short Squeeze risk. We disagree.
The high ratio of Short Selling itself is a reflection of the market's judgment of a company's Fundamentals.
When a company's revenue declines by 20 percent each year,
Ten percent of stores are closed every year and cash flow continues to be negative. It is reasonable for the Short Selling ratio to be high.
It's not Short Sellers that's hunting GME, it's GME itself that's going to die."
Page ten is the target price.
The target price given by Left is twenty US Dollar, but a note is added--
"If Ryan Cohen's transformation plan fails, if the additional issuance continues to dilute,
If the console cycle fails to deliver substantial software sales growth,
Then the reasonable value of GameStop should be closer to five US Dollar per share."
The last page of the report is the signature page.
Below Andrew Left's signature is a statement--
"Citron Research has established a position in GameStop Short Sellers and will continue to hold it.
This report is for reference only by institutional investors and does not constitute any investment advice."
After the report was published on Citron's Twitter, the twelve-page PDF was reproduced page by page with screenshots by retail investors on WallStreetBets Forum.
The forum's GME Discussion Board was flooded with new posts within ten minutes, and the sentiment indicator plummeted from the neutral range after the DFV live broadcast into the panic zone.
Someone replied below the post--
"They said GameStop is worth five bucks at most. It cost me twenty bucks. I can't bear it anymore."
The reaction after the market opened was more violent than before the market opened.
GME opened at a low of 9.8 cents from the pre-market trading price of 10.40 cents.
It fell below nine yuan within fifteen minutes after the opening, and Trading Volume exceeded 15 million shares in the first thirty minutes.
Short Sellers concentrated its efforts under the cover of Citron Research Report, and selling orders poured out like a flood that burst a dam. At ten o'clock, the stock price fell to eighty-five yuan.
At half past ten, it was eight yuan and two. At twelve o'clock at noon, it was eight yuan.
The intraday drop exceeded 24%, and starting from the price of 16.24 cents before Q3 Report, the cumulative drop has exceeded 50%.
The mood on WallStreetBets Forum shifted from panic to division.
Someone posted a screenshot of his own transaction, with the caption "I'm sorry, I can't bear it anymore."
Someone flooded the screen under DFV's post--
"Didn't you say it won't go down? It's eight yuan now."
Others began to question DFV--
"Has he already sold it secretly? He just said he didn't sell it."
DFV posted a new post at two o'clock in the afternoon, with only a screenshot - one share of his position was not sold.
The accompanying text is still the same-"I like the stock."
But this time, the number of replies below the post was significantly less.
The most liked reply only has two words - "Run away."
The second most liked reply was - "It's eight yuan. How long can it last?"
In Era Vanguard's office, Zhao Chen was sitting at the conference table. In front of him, the GME stock price time-sharing line on Bloomberg Terminal was falling like a waterfall.
Su Wantang put the newly brewed tea in his hand, but he didn't drink it.
Shen Zhiyi walked over from the Legal Department's workstation and placed the exposure monitoring report in front of him.
"GME fell to eight yuan, and Options's conservative discount exposure further shrank to 3.7 percent.
The market value of Common Stock has shrunk to approximately 15.6 million US Dollar, with floating losses exceeding 23 million.
Options totals Premium 18 million, the current market value is about 4 million, and the floating loss is about 14 million. The overall floating loss is about 37 million."
Shen Zhiyi Turn the report to the last page,
"Exposure monitoring did not trigger any operations. According to Buffer Zone Mechanism, the passive contraction of the exposure does not require selling Common Stock.
But if the stock price continues to fall, the value of Options may return to zero.
At that time, the total exposure of Common Stock plus Options will fall from 4.99% to 2.84%, and the remaining exposure space will be released."
Lin Shicheng printed a copy of Citron's report and put it on the table.
Zhao Chen picked it up and read it from beginning to end. When he turned to the last page where the target price was twenty US Dollar, he paused for a moment.
Then he closed the report and placed it on the corner of the table.
"Left This report is well written.
The facts are told on every page - revenue is declining, stores are closing, cash is being burned, and additional issuances are diluting.
He didn't make up any data. He was right.
If GME was just an ordinary offline game retailer,
If GME's Short Selling ratio is only ten percent,
If GME didn't have Ryan Cohen driving the transformation,
If GME's retail investors had not united under DFV's call, GME's stock price should indeed have fallen to five yuan."
He pushed the report to the center of the table.
"But Left missed one thing - Short Selling proportions.
He devoted a whole page in the report to respond to Short Squeeze's argument, saying that 'the high ratio of Short Selling itself is a reflection of the market's judgment of a company's Fundamentals'.
This sentence is correct. But the high Short Selling ratio itself is also a structural risk.
When 95% of Circulating Supply is loaned out Short Selling,
When the average cost of Short Sellers is concentrated below ten US Dollar,
When the stock price was eight yuan, the floating profit of Short Sellers was enough to cover the year-end bonuses of all their institutions--
Left thought he was writing a bearish report, but in fact he was writing a suicide note to Short Sellers."
GME's stock price closed at around eight yuan, and the Short Selling ratio remained above 95%.
Citron's Short Selling report was reproduced by Bloomberg, Reuters, CNBC and all Financial Media.
DFV's post was posted on the WallStreetBets Forum homepage, but the reply below changed from "Hold the line" to "How long can it last?"
The emotions of retail investors are splitting, Short Sellers's emotions are carnival, and the media's emotions are watching.
Zhao Chen turned around and looked at Lin Shicheng and Shen Zhiyi.
"Citron has sent a report.
The market is panicking, retail investors are splitting, and Short Sellers is celebrating.
According to the original plan, our exposure was close to the upper limit of 4.99%, and there was no need to buy anymore.
But Left This report has a side effect--
He dropped GME's stock price from 16 yuan to 8 yuan, and at the same time attracted all Short Sellers's attention to Financial Report and Fundamentals.
Short Sellers now believes that GME will fall to five yuan, and they will continue to increase their positions near eight yuan Short Selling.
But they forgot that one share of DFV was not sold, one share of Ryan Cohen was not sold, and one share of Era Vanguard was not sold.
Ninety-five percent of Circulating Supply are still being lent out Short Selling in the market, and none of the three largest longs are selling."
He picked up the teacup and took a sip. The tea was hot and Su Wantang had just refilled it.
"Now, it's time for Era Vanguard to take action."