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Newegg is overegging it again as shares fall 26% in a week after huge volatility


3 August 2021

It is a widely held perception that stock traders need to 'shell' out often, must be calm enough not to be "egged" on by temptations, and should 'lay' off making rash decisions as they can come home to "roost". Quick pause whilst the tumbleweed blows across a deserted floor.... I'll get my coat. Mirth and merriment may be received with mixed levels of appreciation of a Wednesday morning, but there is reason to be jubilant because volatility in tech stock is here.

Just two weeks ago, I took to the airwaves to point out that the Californian consumer electronics company that is listed on the NASDAQ exchange has been subject to some genuine ups and downs during the first part of July. Here we are as another month begins, and the volatility in Newegg stock is once again making its presence felt.

Today, the US market will open with Newegg stock at a five-day low. The stock declined to a low position on Friday during the US trading session, placing it on the list today as one of the largest big-cap fallers as the market opens. Back in mid-July, a flat line of utter blandness for a long period of time had perhaps contributed to the anonymity of Newegg Commerce among traders, however at the end of June, it suddenly rocketed, resulting in a staggering 204% rise in the last 30-day period, peaking at $31.74 per share.

Since then, a gradual downturn has been present, before slumping on Friday last week. Newegg, with a market cap of $6.38 billion, is a large and established company, which is why such volatility is interesting.

When Newegg went public in May through a reverse merger with special purpose acquisition company Lianluo Smart, it did not garner investor notice. But the availability of option-based trading in early July caused stock prices to head for the stratosphere.

The meme stock frenzy is fuelled by people constantly looking for SPAC listings, either of new start-ups with no background, or obscure, off-the-wall choices like Newegg which has its traditions in the legacy business of providing components for people to build their own computers, something that was hugely popular - and I used to do regularly, back in 2001 when Newegg was founded. Nobody does that anymore - when was the last time you saw a beige desktop computer with an equally beige tower taking up legroom under the desk?

The company initially filed for IPO in 2009 under the traditional method, however that did not proceed, and here we are 12 years later, and the firm resorted to the SPAC method, which listed it on NASDAQ and put it firmly in the sights of the meme stock movers.

In the period between its initial IPO attempt and now, Newegg has embroiled itself in controversial lawsuits trying to fight patent trolls, which are individuals and entities attempting to extract false settlements from companies by falsely accusing them of abusing patents on products that they had actually invented themselves.

Newegg sources hardware merchandise. which is mostly made up of desktop computers, laptops and accessories, from more than 2,000 brands, including Asus, HP, Lenovo, Dell, Acer, Microsoft, Samsung, LG, Gigabyte and Westinghouse. It has about 36 million registered customers, of which 4.7 million have purchased at least one item from Newegg in the past 12 months.

Perhaps the ditching of graphics cards among Chinese cryptocurrency miners is influencing all of these traditional hardware suppliers, not just NVIDIA which has also been a firm with massive stock volatility recently. Another theory is that the sudden increase in its share price during July could have been attributed to the company’s July 7 launch of ENIAC which is an on-demand assembly of custom PCs for gamers.

Currently, Newegg stock languishes at $17.20 per share, which is low considering that the consensus had been that its previous $26 low was significant.

Risk warning: Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.5% of retail investor accounts lose money when spread betting or trading CFDs with ETX. You should consider whether you understand how spread bets or CFDs work and whether you can afford to take the high risk of losing your money.
Monecor (London) Ltd is a member firm of the London Stock Exchange. Authorised and regulated by the UK Financial Conduct Authority (FCA) with Financial Services register number 124721 and the South African Financial Sector Conduct Authority (FSCA) under license number 50246.
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