GameStop has been hit by the pandemic, but seen shares climb to an all-time high
Credit: AP
In a sleepy mall in the suburbs of Washington DC, the GameStop store stands out. On what would usually be a quiet Wednesday morning, made quieter still by the pandemic, a steady trickle of customers has been coming in and out.
GameStop is in the business of selling shrink-wrapped video games on the high street. Demand, however, has slumped with gamers deserting shopping malls and turning to digital downloads. Revenues fell by 30pc in the last quarter and the company lost $19m (£13.6m).
Despite this, shares have surged from less than $4 last year to more than $380 on Wednesday, a rise of more than 7,000pc. The advance means the video-game retailer’s market value has risen more than 20 times this month alone to about $26bn, making GameStop bigger than more than a third of the companies in the S&P 500 Index.
Its dramatic rise has not been down to some improvement in market conditions, or piece of good news; quite the opposite. An army of smaller-pocketed investors working together in chatrooms are throwing money at the stock, in direct opposition to a group of wealthy investors who are counting on the stock price to plunge.
Reddit day traders send GameStop shares into the stratosphere
The company has been dubbed the clearest example of a “meme stock”, whose price and popularity are the result of a group online campaign, rather than a cool headed analysis of its price. Many are pitching it as a battle of regular people versus hedge funds and big Wall Street firms.
Staff at GameShop say their customer numbers have increased in recent weeks as a result of the revived interest in the business. “I’ve definitely seen more people in here in the last couple weeks than I have in the last three years,” says Austin Howsen, a member of staff.
‘Like 4chan found Bloomberg’
“They’re finally losing at their own game,” says Consygiere, a 22-year-old Reddit user. “The guys who manipulate retail [investors] since ancient times got screwed over.”
On Reddit forum WallStreetBets, millions of users post memes, screenshots of their wins (known as “tendies” — an in-joke that “chicken tenders” are food of investing champions) and losses.
Plastered across the forum are rocket ship emojis, an indication they believe their stocks are “going to the moon”.
Online day trading has exploded in popularity due to the pandemic, in part due to the booming stock market, as well as the rise of trading apps such as Robinhood and because people are bored while working from home.
WallStreetBets is their town square. Set up in 2012, it has become a hive mind for share buying. The forum describes itself as “like 4chan found a Bloomberg terminal”. Sentiment is driven by internet memes and momentum.
“I got involved in WSB in 2019 when I was in college studying finance,” says Consygiere. “It was quite different to now, with much smaller gains and losses and more gamblers than actual rational traders.
“Don’t get me wrong, the place is still full of gamblers ready to lose it all, but there is also a load of useful information that you won’t easily find anywhere else.”
WallStreetBets has its share of reasonable analysis — GameStop has had supporters on it for more than a year. But it is characterised by its collective mentality, and a distrust of traditional investors. “We can think and make decisions for ourselves, which scares the F— out of old school institutions and hedge funds,” read one popular post.
It seems Occupy Wall Street had the wrong approach.
— WallStreetBets (@wallstreetbets) January 26, 2021
That includes a widespread dislike of short sellers, the investors who make money when shares go down. GameStop, as one of the most-shorted stocks in America, became a natural target.
A handful of professional investors, such as Michael J Burry, made famous by the film The Big Short, had also previously taken stakes in GameStop, which has been used as justification for more buying by enthused Reddit users.
Since Friday, users have flooded the chatroom with evidence of their GameStop winnings in recent days. “Thanks for changing my life WSB,” wrote one, claiming to have made more than a million dollars.
The surge in its stock price has left some users sitting on millions of dollars. One user, Deep F****** Value is up from a $50,000 position now worth $22m, according to screenshots of his portfolio.
Meme-lover Elon Musk, the world's richest man, is idolised by many on Reddit
Credit: Reuters
It has also forced short-sellers to pull out of their positions. Andrew Left of Citron Research, a well-known short, had previously said Gamestop was “pretty much in terminal decline”, but has since closed his short position, adding that online opponents had harassed him, ordering pizza to his house and signed him up for Tinder.
Other short sellers are nursing enormous losses. According to analysts S3 Partners, shorts are down more than $5bn in 2021. One, Melvin Capital, abandoned its position on Wednesday and was forced to take a $2.7bn cash injection from investors.
Some users of WallStreetBets, on the other hand, have come into life changing sums of money.
One post reads: “WallStreetBets, you’re helping people get back on their feet after Covid made them lose everything. I’ve bought shares for 20k at $120 average. If this rocket will fly over $1,000 I’ll be able to help these families get back on their feet (and the kids will be able to go back to dancing classes!).”
The incredible share price run reached fever pitch on Monday as Elon Musk, the world’s richest man, tweeted a link to WallStreetBets simply with the words “Gamestonk!!”. Shares rose by more than 50pc. Musk, a holy figure in the meme-driven world of Reddit, elicited an immediate response.
Gamestonk!! https://t.co/RZtkDzAewJ
— Elon Musk (@elonmusk) January 26, 2021
“PAPA ELON TWEETED WE ARE GOING TO A MILLION, responded one Redditor, followed by eight rocket emojis.
The huge rises in the US stock market in 2020 already had analysts cautioning the bubble could soon burst. But the incredible surge of GameStop, fuelled by social media and commission-free apps such as Robinhood, has some questioning what this means for future market dynamics.
Jamie Rogozinski, who founded the WallStreetBets forum but has had no involvement since April last year, says: “There is a paradigm shift taking place. A decade ago you could have a spirited discussion of value shares and growth shares — now you have meme investing.”
He adds: “[Retail investors] suddenly have seats at the poker table. They are taking advantage of the asymmetries in market dynamics. Millions of small-time investors are getting involved.”
Consygiere, the Reddit user, says he now has around $400,000 in his portfolio and has sold the majority of his GameStop shares. “But I’m still holding a solid 10pc of my portfolio in GameStop and do not intend to sell any time soon.”
Occupy Wall Street
The shorts have taken a beating. Whether Reddit’s forum will be allowed to continue its unabashed market moving activities is a matter for regulators. Despite them fuelling bubble fears, stock-trading apps, that allow investors to buy up stocks using leverage that they frankly cannot afford, have so far faced little scrutiny.
But the mass of retail investors moving in packs seems to be a new force to be reckoned with. Other shares including the remnants of Blockbuster, Nokia and BlackBerry have also enjoyed Reddit-fuelled boosts. There is no shortage of bored online traders ready to find the next meme stock.
Rogozinski says: “They are achieving what the Occupy Wall Street movement was never able to pull off. What you are seeing now is you cannot beat Wall Street, join them.”
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