Analysts at Citron Research believe that with GameStop Inc (NASDAQ:GME) stock once again riding high as Reddit traders/investors have adopted the company as a trading vehicle, the company should listen to its customers and consider buying an esports-focused firm, highlighting Esports Entertainment Group Inc (OTCMKTS:GMBL).
In a research note, the Citron analysts said what they have learnt from the past four months ride for GameStop are two easy takeaways - people love video games and people love to gamble. Therefore, in order for GameStop to keep and maintain a high share price, the company must change its narrative.
The analysts said they feel there is one way for GameStop to seamlessly both pivot away from its secularly declining retail business and monetize its customer database, and that answer is to acquire Esports Entertainment Group.
They noted that one of GameStop's most valuable assets is its large customer base and 55 million PowerUp members. But instead of selling these people low margin hardware and video games, the analysts think GameStop should become the software and, more importantly, the betting platform for the gamers to compete in and bet on esports.
The analysts pointed out that Esports Entertainment is the first esports betting company listed on the NASDAQ exchange and is led by a strong management team of industry veterans including CEO Grant Johnson who has been in the online gambling industry since the 1990s.
They said what is unique about Esports Entertainment is that it is the only vertically-integrated sports betting platform in the stock market today. The analysts noted that gambling on esports doubled to US$14 billion in 2020 and said GameStop needs to be taking their share.
READ: Esports Entertainment records 2Q sales of $2.4 million for first quarter of revenue generation
The analysts concluded that GameStop needs to adapt to the story of Esports Entertainment and work together to build out the largest vertically-integrated esports business in the world. As a short-seller, they said that is a story that Citron would not bet against even at the current elevated GameStop valuation, as there is too much blue sky potential. GameStop shares had soared over 86% higher by lunchtime on Thursday as the Reddit boost returned, trading at US$170.56.
Citron's bullish scenario fed into Esports Entertainment's share price on Thursday, with the stock up over 14% to US$20.08 in lunchtime New York trading. Conversely, shares in Toronto-listed esports gaming firm Real Luck Group Ltd. (CVE:LUCK) were weaker, down 9% at C$1.27.
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