GameStop shareholders are watching stacks of money pour in. But for how long?
CNET
Many of today’s young adults spent their youth at GameStop stores, lining up for new consoles, as well as buying and selling used video games. Now, some of these people are making a fortune buying company stock and cheer up your friends on Reddit to buy more too.
Although GameStop itself hasn’t changed much in the past month, its stock has risen more than 9,700% – that’s not a typo. This dynamic has led Wall Street investors who bet against the company’s future to lose billions of dollars, and the excitement is taking the hype even further.
Over the past week, the finance world has seen shock when GameStop’s stock has risen to unthinkable levels. As of Wednesday afternoon, the stock hovered around $ 325 per share, compared to historic lows of around $ 3.30 per share in the summer of 2019. Even Elon Musk tweeted about it, pointing his 43 million followers to one link from the Reddit community that invests in GameStop.
Read More: The increase in GameStop shares was driven by the slang of Reddit’s WallStreetBets community. Here’s what it means
“We are seeing a phenomenon I have never seen,” said Jim Cramer, CNBC’s Wall Street commentator and former hedge fund manager, during a segment on Monday. And GameStop may be just the beginning. “It’s insane.”
This may seem like a strange story about Wall Street investors being invaded by enthusiastic users of social networks. For some, it has been fun to see these investors being taken to the laundry by a lot of people posting rocket emojis, saying that GameStop’s stock will “go to the moon”.
Reddit users are betting that they can take GameStop shares “to the moon”.
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But for some on Wall Street, it is the latest sign of how social media can change everyday life. Twitter changed the world of news and politics. YouTube and Instagram have transformed the fashion, beauty and entertainment industries. Reddit is now facing Wall Street.
These worlds also overlapped. Fans of Korean pop groups, known as K-pop stans, post numerous tweets about their favorite stars to crush racist hashtags on Twitter. And the TikTokers have come together in an attempt to confuse President Donald Trump’s re-election campaign.
Now, encouraged Reddit communities are talking about taking on other companies that Wall Street is betting heavily on. The Reddit crowd is already trying to boost BlackBerry, the once-popular handset maker that now focuses mainly on selling business software. And Redditors are also targeting the tough AMC film chain, pushing their shares from about $ 2 a share to more than $ 8 in after-hours trading. As of Wednesday, it was hovering around $ 17 a share.
The actions of the Reddit community had such an impact that TD Ameritrade took the extraordinary step of limit stock trading on Game Stop and AMC shares, “due to the abundance of caution amid unprecedented market conditions”. Nasdaq also warned that it will stop trading in shares it believes are being manipulated by social media.
Meanwhile, traffic to the Reddit community at the center of the drama, WallStreetBets, is breaking records. WallStreetBets recorded 73 million page views in its discussion forums on Tuesday, according to a report by Mashable. Last week, it reached about 700 million page views. Reddit is already the 46th most popular website on the web, reaching more than 78 million unique visitors in December, according to comScore.
But when the memes stop and the excitement wears off, GameStop will return to being that struggling video game retailer at a time when games are increasingly moving toward streaming and the idea of entering a physical store is still a stressful outlook during a pandemic. At that point, stock analysts say, whoever has held the stock will see its value evaporate.
“This is not natural, insane and dangerous,” Michael Burry, a prominent GameStop investor and one of the themes of the book and the film The Big Short, wrote in a now deleted tweet. Its investment of around $ 17 million in the company soared to $ 250 million on Tuesday, Markets Insider reported.
Many players spent their childhood going to GameStop.
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Who listens?
Michael Pachter, a longtime video game industry analyst at Wedbush Securities, said he had not even bothered to update his share price expectations for GameStop since the shares started going crazy last week. “Who’s listening?” he said. “Nobody cares what a sales analyst says now.”
For him, there are reasonable explanations why people can get a little excited about GameStop. One of his newest board members, Ryan Cohen, helped turn Chewey into one of the largest online pet product sellers in the world, before selling it to PetSmart. GameStop is also on track to be profitable again.
But that doesn’t come close to explaining GameStop’s stock price now. “It’s a Ponzi scheme,” said Pachter, referring to a form of fraud that appears to generate money, but is in fact only sustained by financing new investors. “There is a point where it will fall.”
He suspects that this could happen after the company released its quarterly results in March, when board executives and investors could sell their shares.
Meanwhile, the social media hype continues on Reddit, where users are declaring their intention to buy and hold more GameStop stock, all to send even higher prices.
“My mom told me it’s time to sell,” wrote a Reddit user in a post about GameStop’s stock moves. “Should I find a new mom?”
“Yes,” replied another user. “The answer is yes.”
See too: Why GameStop, the shares of BlackBerry suddenly rose, thanks to Reddit