What Happened with GameStop Stock

What Happened With GameStop Stock?

What happened with Gamestop stock? In many ways, GameStop is the stock that changed the course of history. The chain of little retail video game stores behind the stock seems insignificant compared to the movement’s impact. Nonetheless, the company was founded in 1984 as Babbage’s in Dallas, Texas. The early business focussed on selling games for the Atari 2600 and the original Nintendo system. Over the years, GameStop has changed hands a few times, including being acquired by the bookstore chain Barnes and Noble. GameStop became its independent company in 2002 when it went public, with Barnes and Noble retaining a majority stake. This continued until 2004, when Barnes and Noble distributed GameStop’s shares to its shareholders. 

Chart by TradingView

GameStop operates nearly 5,000 brick-and-mortar stores that are primarily located inside shopping malls. Most are in the United States, with about a third of the stores scattered across Canada. Australia, and Europe. The video game retail industry has generally struggled over the past decade when consoles started allowing players to buy and download games directly through online marketplaces.

While next-generation console sales have been booming, these are likely not the headlines you remember GameStop making over the past year. But what happened with GameStop stock? That’s a wild story in and of itself.

What Happened With GameStop Stock

GameStop Stock Crash

The story gripped global markets in January 2021 and left Wall Street reeling. Looking back on the events, it isn’t easy to believe what happened. A small group of retail investors on Reddit incited a direct attack on hedge funds using their tactics. 

At the center of the madness was GameStop, the stock symbolizing the war between retail and institutional investors. What happened with Gamestop stock? 

The timeline of events that led up to the short squeeze begins in 2019. A handful of Redditors on r/WallStreetBets began to talk about the potential of GameStop stock. Back then, nobody listened to them, and many wrote GameStop stock off as a failed company. Leading the charge was Keith Gill, also known as Roaring Kitty on YouTube and DeepF’ckingValue on Reddit. Gill would become an instrumental figure and glorified hero of the Reddit movement. 

In 2019, Gill purchased around $53,000 in call options for GameStop stock—his purchase fit right in on a subreddit known for making outlandish investments. But Gill had a method to his madness and pointed out the massive short percentage against GameStop’s stock.

At the time, few retail traders looked at short positions as a stock indicator. Over the next couple of years, Gill would post videos explaining his position to fellow Redditors. 

In October 2020, another Reddit user named Stonksflyingup posted a video of their own. Like Gill’s message, this new video spoke about the short position against GameStop of one particular hedge fund: Melvin Capital.

This fund had been short GameStop since 2014. Its position was getting so large that closing it would cause a massive squeeze. Over the next few months, the movement began to gain momentum until everything came to a head in early January. 

What Happened with GameStop Stock

The GameStop Stock Short Squeeze

What happened with Gamestop Stock? On January 11th, shares of GameStop saw their first real push as the stock gained 12.72% in a single session—aIt was asignificant move for a stock like GameStop , but nothing that caught the market’s attention.

Two days later, on January 13th, the stock rose 57.39% and hit \$31.40 per share. The trading volume on this date saw an all-time high for GameStop, with a staggering 144 million shares being traded. On January 14th, the stock gained a further 27.10% to close the session at \$39.91. But we were only just getting started. 

On January 22nd, the stock did another 51% gain on a daily trading volume of 197 million shares. This was followed up by 177 million on the 25th and 178 million on the 26th. These three days marked the pinnacle of the short squeeze and took the stock price from $65.01 on the 22nd to $347.51 on January 27th. On January 28th, the stock hit its all-time high price of $483 per share after hitting over $500 in the pre-market

While the short squeeze saw these massive gains, there were also massive drawdowns. January 28th ended up with a 44.29% loss at the closing bell. On February 2nd, the stock price lost 60%, and a couple of days later, shares dropped by a further 42% on February 4th.

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Fallout from the GameStop Short Squeeze

What happened with GameStop stock? Understandably, there will be repercussions when something of this magnitude happens in a regulated market.

Melvin Capital was forced to close its short position in GameStop and finished January with over $4 billion less in assets under management. Other hedge funds with short positions in GameStop saw losses in the hundreds of millions of dollars.

The stock close to being a penny stock less than a year earlier was wreaking havoc across Wall Street. 

Robinhood was a brokerage at the center of all the madness. It was a popular trading platform for retail investors with its simple interface and mobile-based trading app.

But during the short squeeze, Robinhood suddenly halted the ability to buy shares of GameStop and only allowed its users to sell. It was later revealed that Robinhood uses a payment system for order flow.

This meant that the site made revenues from selling trading data to hedge funds, which pay to see this order flow. One of these hedge funds was Citadel, the parent company of Melvin Capital. 

Later that year, a congressional hearing was called with many of the major players to discuss online trading platforms. There was a further hearing on the payment for order flow system used by Robinhood and the way it gamified trading. This led to Robinhood paying a record $70 million fine to FINRA for misleading its users. 

Keith Gill would eventually exercise all 500 call options with a strike price of $1.20. This gave him 50,000 shares, bringing his total position to 200,000. 

Other Stocks Affected

The GameStop short squeeze led to the emergence of the meme stock movement and social media trading. Subreddits like r/WallStreetBets began targeting beaten-down stocks with high short positions against them. This led to another short squeeze in June of 2021 for AMC, when it hit an all-time high price of $72.62. Other stocks that saw a squeeze include BlackBerry, Nokia, Bed Bath and Beyond, Naked Brand, and Express Inc.

There have been dozens of other examples of meme stocks that have had squeezes over the past year. Since the original GameStop squeeze, r/WallStreetBets has ballooned to over 11 million users. The subreddit has been accused of being taken over by bots or users trying to sabotage other traders. None of the original moderators or founders are currently associated with the subreddit.

GameStop Stock Now

What happened with GameStop Stock?? The stock has erased most of its gains from the short squeeze and is trading at just above \$100 per share. Ask any fundamental analyst out there, and they’ll tell you how overpriced GameStop still is. After all, before any short squeeze occurred, the stock traded for below \$5.

The business is currently in the process of a major digital transformation headed by Chairman Ryan Cohen. The company recently partnered with Immutable X to create an NFT marketplace. Cohen’s vision for the future is a digital platform where gamers can come and buy, sell, and trade their in-game NFTs. 

Whether you believe in the vision or not, GameStop seems to be moving away from brick-and-mortar retail. This is probably the right move, considering that any next-generation console can download games directly through the system. Whether the NFT market can continue on its current trajectory remains to be seen. If it can, then Cohen could steer the company in the right direction. If not, GameStop’s inevitable demise may have just been extended by the squeeze.

As for GameStop’s stock, the downward trajectory continues. Diamond hands seem to be a thing of the past as retail traders lose patience. While most were waiting for the self-proclaimed MOASS or Mother of All Short Squeezes, others tried to stick it to the man. And they did, to an extent.

Melvin Capital and other hedge funds lost billions over the squeeze. AMC, GameStop, and several other businesses were saved, even if just temporarily. As the meme stock phenomenon begins to wane, we’ll likely always remember GameStop as the stock that, at least for a few weeks, brought Wall Street to its knees. 

Frequently Asked Questions

Gamestop has been up and down since its short squeeze. 

Gamestop stock is nowhere near as valuable as it was when retail traders pushed the prices to all-time highs. It's now trading close to $10 in 2024. 

Low sales, inflation, and high costs are causing Gamestop to struggle. As a result, Gamestop stock is declining. 

It's hard to say that Gamestop stock will go back up. However, analysts have suggested it will be near its 2021 high of $80 by 2026. 

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