GameStop’s Reddit-fuelled trading surge could plunge 94% as it faces growing competition from rival digital games, one Wall Street analyst says

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  • GameStop’s shares could tumble 94% on strong competition from rival digital games, one analyst said.
  • The Reddit favorite’s meme popularity will likely have less of a long-term impact on its stock, he said.
  • Edward Woo downgraded GameStop’s rating to “sell” from “hold” and lowered his 12-month price target.
  • See more stories on Insider’s business page.

GameStop, the video-game retailer cheered by day traders this year, is likely to see its Reddit rally fade because of strong digital competition from Microsoft and Sony, Ascendiant Capital analyst Edward Woo wrote in a research note on Saturday.

Woo has raised questions about GameStop’s low market share in digital game sales and expects the company’s long-term share price to drop sharply.

He further said GameStop’s popularity on Reddit will at some point stop driving the movement in its stock.

“Due to the popularity of GameStop on Reddit chat boards and with Robinhood retail investors, GameStop shares appears to no longer trade on traditional fundamental valuations or metrics, but on retail investors’ sentiment, hope, momentum, and the powers of crowds,” he wrote.

“This makes short term price movement forecasts nearly impossible (and we acknowledge can drive shares much higher), but we believe that over the long run GameStop’s current elevated share prices will come back down to match its current weak results and outlook.”

Woo downgraded the company’s stock to “sell” from “hold,” and lowered his 12-month price target to $10 per share from $12.

GameStop didn’t immediately respond to Insider’s request for comment.

The company’s stock was up almost 4,000% from a year ago after it found itself at the center of a stock market storm between Reddit day traders and short-sellers.

Its shares were last trading 10% lower in the pre-market, at $141.09 per share on Tuesday, after GameStop was said to be looking for a new CEO to replace George Sherman, sources told Reuters.

News of the management shake-up followed Woo’s stock downgrade. The company is already going through wide “transformation” in culture and strategy under board member and activist investor Ryan Cohen.

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Airbnb and DoorDash sink as analysts turn skeptical of massive IPO rallies

airbnb ipo nasdaq
The Airbnb logo is displayed on the Nasdaq digital billboard in Times Square in New York on December 10, 2020. – Home-sharing giant Airbnb was set for its Wall Street debut Thursday with a whopping $47 billion valuation amid a feverish rush for new shares in companies adapting to lifestyle changes imposed by the coronavirus pandemic. (Photo by Kena Betancur / AFP) (Photo by KENA BETANCUR/AFP via Getty Images)

  • Airbnb and DoorDash shares fell on Monday after analysts downgraded the newly public companies’ stock.
  • Both firms surged last week as outsized demand pushed prices well above their IPO levels.
  • Gordon Haskett downgraded Airbnb to “underperform” from “buy,” and expects shares to fall roughly 20% from current levels.
  • DA Davidson lowered DoorDash to a “neutral” rating from “buy,” adding that the company’s stock price leaves little room for future error.
  • Watch DoorDash trade live here.
  • Watch Airbnb trade live here.

Airbnb and DoorDash both tumbled on Monday as analysts downgraded ratings following both firms’ colossal public-market debuts.

Airbnb sank as much as 10.1%, while DoorDash plunged 13.6% at intraday lows. The two companies collectively raised $6.7 billion in back-to-back initial public offerings last week, capping a record year for IPOs. Massive demand for the firms’ shares fueled massive gains in their first days of trading, but analysts covering the companies are growing concerned that the stocks climbed above rational trading levels. 

Gordon Haskett changed its rating for Airbnb to “underperform” from “buy” on Monday, eschewing the bullish outlook he held for the firm just one week ago. The home-sharing company’s valuation is “more than stretched” after more than doubling in its Thursday debut, the firm said. Airbnb also trades at two times its estimated gross bookings value, where the average online travel group trades at a 0.6 multiplier, Gordon Haskett said.

The firm lifted its price target to $103 from $77, but the level still implies a roughly 20% drop from current levels.

Read more: Shark Tank investor Kevin O’Leary told us 2 concrete strategies for building wealth over time – and shared how a rude awakening during the pandemic led him to build a new investing app

Separately, DA Davidson downgraded DoorDash to “neutral” from “buy” following the firm’s 86% opening rally. The firm still feels DoorDash deserves to trade at a premium multiple due to its leadership in the food-delivery sector but noted its stock price leaves little room for error.

DA Davidson boosted its price target for DoorDash to $150 from $93. That level implies a slight drop from the stock’s current price. No other analysts have initiated ratings on DoorDash shares. 

Despite the shift in analyst sentiments and Monday losses, both companies still trade well above their IPO prices. Their rallies have fueled new scrutiny of market optimism, with some strategists concerned that the outsized demand for new issuances is a symptom of dot-com-era greed.

DoorDash traded at $157.51 as of 3:10 p.m. ET Monday. Airbnb traded at $129.33.

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