GameStop’s sales may have taken a hit from the coronavirus pandemic, but its stock price has surged roughly 400% since the year began thanks to an “ugly” fight prompted by day traders on a Reddit investing thread.
After closing Friday at roughly $65 per share, shares of GameStop surged on Monday morning to more than $140, even prompting the New York Stock Exchange to issue a temporary pause on trading the stock four minutes into Monday’s session, according to the Wall Street Journal.
A bunch of bored Redditors singlehandedly destroying the efficient market hypothesis feels like it should be a bigger story. https://t.co/U3afl6t6Y5
— Kevin Roose (@kevinroose) January 25, 2021
GameStop’s troubles extend far beyond the pandemic. In 2019, the company laid off dozens of regional managers amid a yearslong stock slide, according to Wired. The company isn’t expected to turn an annual profit until at least 2023, and in November of last year, major stakeholder Ryan Cohen, a co-founder of online pet products seller Chewy, wrote a letter to GameStop’s board urging it to take dramatic steps to turn the company around.
“GameStop has lost billions of dollars in annual revenue and squandered a massive amount of market share,” Cohen wrote. “Stockholders have seen the value of their equity decline by nearly 68% over the past three years and decline by nearly 85% over the past five years. GameStop is also one of the most shorted stocks in the entire market, which speaks volumes about investors’ lack of confidence in the current leadership team’s approach.”
That was the case for GameStop stocks until Reddit got involved.
Nearly two years ago, one Reddit user speculated that GameStop stocks could make a recovery despite the company’s grim fundamentals, citing undervalued cash on hand, according to Bloomberg. Even though GameStop’s shares continued to flounder, the idea of a GameStop surge was taking hold. Michael Burry, who identified the impending 2008 financial crisis, shifted his asset management company to stop shorting GameStop’s shares, and a Reddit-based “short squeeze” movement was galvanized into action, attributed at least in part to Cohen’s letter.
In a short squeeze, investors are forced to buy stocks on something that they were shorting in an attempt to recoup losses, driving the price of the stock up even further.
“It was a meme stock that really blew up,” r/WallStreetBets moderator Bawse1 told Wired. “The massive short contributed more toward the meme stock.”
Institutional short investors who lost money on GameStop’s explosive rise were quick to respond, calling long buyers “suckers.”
“We understand short interest better than you,” Citron Research tweeted.
Tomorrow am at 11:30 EST Citron will livestream the 5 reasons GameStop $GME buyers at these levels are the suckers at this poker game. Stock back to $20 fast. We understand short interest better than you and will explain. Thank you to viewers for pos feedback on last live tweet
— Citron Research (@CitronResearch) January 19, 2021
The tweet and YouTube livestream prompted users to attempt to hack Citron founder Andrew Left’s account, to order pizzas to his home address, and to sign him up for online dating app Tinder, according to Wired.
The stock, at that point at about $40, kept climbing. Shares traded on Monday at about $73 during midday, well below the intraday high but still above Friday’s close.
WallStreetBets shows no sign of letting up on its GameStop campaign, with users warning to “buckle the f— up” until GameStop hits “at least $1000+.”
Corey Hoffstein, chief investment officer at Newfound Research, said GameStop’s price bounce reflected a tension between retail investors and institutional short investors.
“The traditional Wall Street view is that markets are driven by some tie to fundamental value,” Hoffstein said. “What we’re seeing is an influx of speculative retail traders who don’t have any philosophy about valuation.”
Bawse1 said that Reddit “brings a new factor into stocks that wasn’t prevalent before.”
“It’s called hype.”
