The Next GameStop Is a Faded Brand in the Metaverse
Shares of former high-flying smartphone brand HTC have doubled as investors feed on hope and hype.
It's becoming a familiar story: A once-famous brand, beloved by fans but unable to keep up with changing times, loses money hand over fist and its shares get beaten down. Suddenly, retail investors decide it's worth another look, and off the stock goes — to the moon.
Back in January, GameStop Corp. became the cause celebre for underdogs and small shareholders seeking to inject some democracy back into equities markets. Now, shares of Taiwan's HTC Corp. are enjoying a return to glory after a decline of 97% from the heyday when the brand was synonymous with leading-edge handsets. Its story is strikingly similar to the U.S. games and software retailer.
Shares of the Taoyuan-based company climbed the daily 10% limit Monday, taking its rise since early October to 127%. The meteoric rebound to the price's highest level in four years has drawn comparisons to GameStop. The latter rose 1,500% in a matter of weeks thanks to a coordinated effort by fans on social-media site Reddit to boost the stock following the pronouncement by short-sellers like Citron Research that it was a dog.
Both GameStop and HTC naysayers have had good reason to be bearish. The U.S. company hasn't posted an operating profit since 2018 and sales continue to fall, a fact the Redditor-led revolt hasn't managed to reverse. Meanwhile, the handset maker has been in the red since 2015 amid revenue plunging 99% over 10 years to less than $200 million in 2020. Even with this renewed investor interest, neither firm has shown any indication that a turnaround is imminent.
A decade ago, HTC was the biggest name in smartphones — it pipped Apple Inc. for U.S. market share back in the third quarter of 2011 — having earlier made history as the first company to produce an Android device (and first with a Windows Mobile handset, too). Yet a series of missteps, an inability to keep up with changing trends, and a refusal to spend money on marketing meant it got overwhelmed by cheaper Chinese rivals and outplayed by goliath Samsung Electronics Co. A weak attempt at redemption came in 2015, when it went all in on virtual reality, an as-yet unproven business, and essentially gave up on the $400 billion smartphone market.
But Facebook's recent decision to focus on virtual and augmented reality (aka metaverse) — the social-media giant is changing its name to Meta — and the release last month of HTC's new VR headset, called Vive Flow, gave bulls an excuse to bet big.
Some of the elements that helped GameStop are also at play for HTC. For the former, an army of fans, a social-media venue for them to congregate, and the ability to trade quickly and cheaply set the stage for its massive rally. Aiding HTC's share resurgence is its high name-recognition. At the height of the boom, small shareholders crowded the company's annual meeting to laud the leadership and extol the virtues of its namesake smartphones. Many still hold stakes.
Also helping drive the recent rally is quick and cheap access to share trading. While commission-free trades offered by Robinhood Markets Inc. are credited with enabling even small orders on GameStop's stock in the U.S., Taiwanese benefit from extremely cheap rates tied to transaction value rather than a set fee per trade. And they can be executed in real-time on a mobile app.
Social media has also played a role. While Reddit isn't big in Taiwan, local text-based bulletin board PTT is the go-to place for gossip and stock tips. Mentions of HTC (in Chinese) and its ticker code (2498) have spiked over the past month, with some posters trying to make the case for a VR-inspired recovery. Facebook's entry, they posit, is proof that the era of virtual reality has finally come and this little outfit is ideally suited ride the wave. More cynical commenters note that even pigs can fly when blasted with air.
What's true for buyers of both GameStop and HTC shares is that the reality of the businesses is far less important than the narrative that can be told, and an underlying belief that things will eventually get better. Never mind that GameStop continues to lose money as the malaise over physical retail continues; its shares are trading around 20-times pre-Reddit prices albeit 40% below their peak. HTC fans are likely taking their cues from such momentum, holding onto the belief that only a brave trader bets against eternal optimism.