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 impact the movement had. Nonetheless, the company was founded back 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 own 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 own shareholders.
What Is GameStop?
GameStop operates nearly 5,000 brick-and-mortar stores that are primarily located inside shopping malls. A vast majority are in the United States, with about a third of the stores scattered across Canada. Australia, and Europe. The video game retail industry has struggled in general over the past decade when consoles started to allow players to buy and download games directly through the 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?
The story gripped global markets in January 2021 and left Wall Street reeling. Looking back on the events, it’s difficult to believe what happened. A small group of retail investors on Reddit incited a direct attack on hedge funds using their own tactics.
At the center of the madness, was GameStop, the stock that would become a symbol of the war between retail and institutional investors.
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, with many writing 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. On a subreddit that was known for making outlandish investments, his purchase fit right in. But Gill had a method to his madness and pointed out the massive short percentage against GameStop’s stock.
At the time, there weren’t many retail traders who were looking at short positions as a stock indicator. Over the next couple of years, Gill would post a series of videos explaining his position to fellow Redditors.
In October of 2020, another Reddit user named Stonksflyingup posted a video of their own. Similar to 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 fewmonths, the movement began to gain momentum. Until everything came to a head in early January.
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. A significant move for a stock like GameStop but nothing that really 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 along the way. January 28th actually 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.
The Fallout from the GameStop Short Squeeze
What happened with GameStop stock? Understandably, when something this major happens on a regulated market, there are going to be some repercussions.
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 that had been close to being a penny stock less than a year earlier, was wreaking havoc across Wall Street.
Robinhood was a brokerage that found itself 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 system called payment to 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 to 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 of his call options which had a strike price of $1.20. This gave him 50,000 shares which brought his total position to 200,000 shares.
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 who are 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 currently 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 was trading for below $5.
The business itself is currently in the process of a major digital transformation, headed by Chairman Ryan Cohen. The company just recently announced a partnership 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 has the ability to download games directly through the system. It remains to be seen whether the NFT market can continue on its current trajectory. If it can, then Cohen could be steering 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. It seems as though diamond hands are a thing of the past; as retail traders begin to lose patience. While most were waiting for the self-proclaimed MOASS or Mother of All Short Squeezes, others were just trying 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.