Here's Why GameStop Stock Is Flying Higher Today

What happened

Shares of video game retail chain GameStop (NYSE: GME) were spiking higher on Tuesday, thanks to ongoing conversations between an activist investor and GameStop management. Investors are hopeful the talks will turn the business around, and that's sending the stock higher.

GameStop stock hasn't been this high in over a year. As of 10:20 a.m. EDT, the stock is up 16% to $10.15 per share. But it's spiked as high as $11.16 today, as of this writing.

A chalkboard shows an arrow on a chart, representing money increasing over time.

Image source: Getty Images.

So what

Previously, a fund called RC Ventures LLC excited investors by taking a stake in GameStop, which has now increased to 10% ownership. RC Ventures is headed by Ryan Cohen, founder and former CEO of Chewy. Given Cohen's past success in e-commerce, investors sent the stock higher, hoping he could help the flailing GameStop.

At the time, it wasn't clear whether Cohen would take on an activist-investor roll. But according to a new filing with the Securities and Exchange Commission (SEC), Cohen has been talking with GameStop management -- he doesn't plan to be a passive investor. His vision for GameStop is to compete with the granddaddy of all e-commerce companies: Amazon, according to a Bloomberg report citing insider information. 

Now what

Becoming an Amazon competitor is an interesting development. On the surface, it could simply mean Cohen hopes GameStop will develop its e-commerce operations beyond what they are today. However, it's possible the plan is to expand into more product categories than just video game retail

One of GameStop's potential strengths is its real estate; it has over 5,000 locations. These are a liability right now because of slumping video game sales. But they could be an asset for a grander e-commerce strategy. After all, Amazon is pursuing more physical places closer to its customers to make shipping faster. GameStop already has the real estate footprint to help with e-commerce distribution.

Until GameStop management announces a strategy change, investors are left to speculate. For now, GameStop remains a struggling business in need of a turnaround.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Chewy, Inc. and GameStop and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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