GameStop Short Sellers May Be 'Running Out Of Bullets': Analyst

GameStop Corp. GME shares were up another 1.6% on Wednesday following reports that billionaire investor Carl Icahn is still short-selling the stock.

Entering 2021 GameStop was one of the most heavily shorted stocks in the market, but short interest in the video game retailer has declined dramatically in the past two years following one of the largest and most high-profile short squeezes of all time.

Icahn built up a large short position in GameStop during the height of the short squeeze, when the stock traded as high as $483 in January 2021. Icahn's bearish bet against GameStop during the market frenzy has been extremely profitable up to this point, given that GameStop has lost roughly two-thirds of its value since that time.

The Numbers: On Wednesday, S3 Partners analyst Ihor Dusaniwsky said GameStop now has about $1.3 billion in short interest, representing about 20.5% of the stock's float.

GameStop shares are down 30% year-to-date in 2022, and its short sellers have generated about $152 million in year-to-date mark-to-market profits. However, GameStop's short interest has declined by more than one million shares over the past month as short sellers have covered their positions, Dusaniwsky said.

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Shares of GameStop are now up 11% overall in the past six months, despite the stock's ongoing net losses and heavy shareholder dilution. While GameStop's recent resilience may be applying pressure to some short sellers, Dusaniwsky said Wednesday that Icahn's large mark-to-market profit on GameStop likely means he won't be forced out of his position any time soon.

Limited Shares To Borrow: In the near term, at least, Dusaniwsky said short sellers don't have access to enough shares of GameStop to apply serious downward pressure on the stock without significantly increasing borrowing costs.

"The vast majority of GME short selling has already been done, existing short sellers will be able to add some more exposure to their positions and new short sellers may enter the trade — but there is not enough stock borrow available to execute large short trades in the stock," he said.

Without a significant amount of shares to borrow, Dusaniwsky said GameStop's price action heading into the closing weeks of 2022 will be dictated largely by buying demand rather than short selling.

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Benzinga's Take: Meme stock traders certainly had an opportunity to make a quick buck during the GameStop short squeeze in January 2021, but short sellers willing to stomach the volatility have now also made a killing in the nearly two years since.

In the most recent quarter, GameStop reported a net loss of $108 million and announced a new e-commerce partnership with crypto exchange FTX, which subsequently filed for bankruptcy earlier this month. Following the FTX bankruptcy filing, GameStop announced it would be ending the partnership.

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Photo: Courtesy of Dicoplio Family on Flickr