What does Benedict Evans make out of the GameStop mayhem?

It is not another article about the commotion that r/wallstreetbets caused around GameStop and some other meme stocks. Yet, leading technology analyst Benedict Evans couldn’t walk away from this question when he sat down with Protocol’s editor-at-large David Pierce to discuss tech in 2021.

Evans is said to have a knack for seeing the future, and so Protocol, as per usual, invited Evans to share his predictions for 2021. Take note that the whole discussion took longer than an hour, and this article is just a short overview of some ideas that Pierce and Evans discussed.

The pandemic changed our lives by accelerating the digital transformation. Now, almost every business has some kind of internet presence, and we are so used to Zoom instead of regular meetings or flights that it’s almost impossible to imagine how we used to live not that long ago. But will these changes stay once the coronavirus is conquered, and we can go back to living the way we did in 2019? 

Was GameStop havoc caused by the pure boredom of people stuck at home who have nothing to spend their extra money on?

r/wallstreetbets mayhem

When famed short-seller Andrew Left of Citron capital bet against GameStop, saying that the company’s shares should trade down about 50% to about $20, he couldn’t have had the slightest idea it would cause such turmoil in the stock market. A herd of amateur investors, mostly fueled by subreddit r/wallstreetbets, squeezed GameStop shares in such volumes that the price went skyrocketing, and the wolves of Wall Street were forced to sell some long positions in stocks to cover their losses. It drew attention from the White House, and institutional investors called for closer monitoring of social media.

GameStop shares are called meme shares, which means that interest in them is driven by cultural factors rather than the financial assessment of what the company could be worth in the future. Investing in GameStop is more like investing in Bitcoin, not Tesla, whose founder Elon Musk, by the way, contributed greatly to this turmoil with a single Tweet.

Pierce asked Evans whether this battle between professional and amateur investors could be a significant change in how markets operate? Evans, who was once a stockbroker himself, sees some bubbles in the market. Some of the market tides are due to low interest rates and people staying at home and having nothing to spend their money on.

“As someone told me, this is because there is no sports betting. So people want to bet on somebody else, which is not as dumb as it sounds, actually. It is clearly partly entertainment,” he said.

According to him, Musk, Trump, major digital platforms removed the traditional gatekeepers and constraints on what you could say, how you could say it, how you could go to market.

“That's what Shopify does. That's what Amazon Marketplace does. That's what Google does. That is what all of these platforms are doing - all of the old gatekeepers and aggregation will go away, and we sort of work out what the new gatekeepers and the aggregation models are. Now, I am sort of old fashioned enough to think that, in the end, the company is worth the value of its future cash flows,” he explained.

At the moment, he explained, people are betting on GameStop as they do on bitcoin, meaning they don’t worry about the future cash flows off the company. This recent turmoil in Wall Street feels disconnected from the real economy for him.

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Broken habits

“Is there a possibility that we're just wrong, that we're going to get out of this pandemic and things are going to go back to the way they were in 2019, and everything will have changed hugely just for one year and then just disappear?” Pierce asked Evans.

He told Protocol editor Pierce about a cartoon that he found from 1945. It’s a sequence of panels showing a man and what he is going to do once the blackout ends. In 1940, he was eager to tear down every curtain in the house and make a bonfire. In 1941, he was thinking about fireworks once the blackout is over. It is getting more and more extreme until 1945 comes, and this fictional man is just sitting in his armchair, saying it would be nice to see the end of the blackout.

A cartoon by Fougasse © Punch Limited

“You got a lot of built-up frustration. At the end of this year, I think, there’s going to be an explosion of consumer spending. Like everyone is going to go and get an outfit and go to a restaurant and get a bath. To the extent that the bars and restaurants and shops are open, of course,” Evans said.

We won’t stay working from home forever, but some old habits certainly got broken.

“You were doing your weekly trip flight to New York or your weekly flight from New York to LA, and you were walking around having three meetings a day. And for 18 months, you could not do that, and now you ask yourself, do I actually have to do that?” Evans said.

Once your habits get broken, you have to reset your routine and work it out from there.

“The answer might be that yes, you are still going to go to New York once a fortnight, but not doing it just because you're doing it,” he said.

The pandemic broke the inertia, people and businesses found some new ways of doing things, new habits that might stick even after the pandemic is over.

Evans gave an example of the UK fashion retailer Next. Last summer, they issued a statement about how they were adapting to the new pandemic reality.

“One of the things they found was that previously they would save up all the stuff to get on the flight, to go and see the supplier. So they would talk about it once a month when they went to the supplier. And now it's Zoom and FedEx. And the speed of that is vastly quicker. (...) I think there have been all sorts of stuff that you would never have known because you would not have dared to try it,” Evans said.

According to Pierce, we now take for granted that every company is on Yelp, has a website, and works with delivery services. The truth is, many companies did not exist on the internet before the world was paralyzed with COVID-19. A lot of businesses used to operate by taking cash and checks.

“Yes, especially in America. The future is unevenly distributed, and sort of a massive acceleration to this point is the acceleration of having to be online, having to go to work, having to have that data triggers all sorts of other changes in how you run your business,” Evans explained.

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