US retailer GameStop’s stock price has been skyrocketing, thanks to an unusual campaign from a Reddit community.
Due to the troubled performance of physical games retail stores these days, particularly during the COVID-19 pandemic, short sellers have been making huge bets that GameStop’s stock price will fall.
Apparently irritated by this, the users over at r/wallstreetbets have decided to push back. Members of the community kickstarted a buying spree of GameStop stock, pushing up the price – which was then picked up by others and went on an incredible run. Gamestop closed at $149.98 on Tuesday, an increase of 650 per cent from 2 weeks ago, when it traded at $20.
It brings me absolutely no pleasure to report this, but wealthy irritant Elon Musk has even gotten involved, with a meme-laden Tweet pushing GameStop’s stock price up even further.
— Elon Musk (@elonmusk) January 26, 2021
Following Musk’s Tweet, GameStop saw a 50 per cent boost during after-hours trading, adding on to the 93 per cent boost seen on Tuesday. A 50 per cent boost because of “Gamestonk” – our society is doomed and we deserve it.
More amusingly though, this Reddit campaign may have some unpleasant consequences for the short sellers betting against GameStop. As the stock price rises, the shorters’ positions become liquidated, with the possibility of causing bankruptcy. Meaning a lot of hedge funds may be losing a lot of money right now.
Speaking to Reuters, former US Securities and Exchange Commission (SEC) enforcement attorney Jacob Frenkel raised the possibility of an SEC investigation: “Such volatile trading fueled by opinions where there appears to be little corporate activity to justify the price movement is exactly what SEC investigations are made of.”
What does this actually mean for the games industry? Probably not very much, GameStop, despite recent changes in management remains a business that appears to be in managed decline as it struggles against growing digital sales. If its new stock owners hold onto their stock, rather than cashing in, then its price could stay inflated (although certainly not at current levels). Such broad ‘community’ ownership could potentially give the company more breathing room for a much needed revamp and restructure.