How Redditors Crushed Short Sellers, Gamed Wall St And Spiked GameStop Shares Over 300%
GameStop shares (GME) have been on a rollercoaster ride since the start of 2021, and even before then, the seeds of GameStop's remarkable run were planted during the latter half of 2020. In late July, GME was trading at around $4/share and slowly started creeping up as the summer months baked on. Leading up to the launch of the launch of the PlayStation 5 and Xbox Series S/X in mid-November, shares were trading at around $11/share. And even by the end of 2020, shares were still trading under $20.
But at the start of the year, things really kicked into high gear, with the stock soaring to around $70/share yesterday. To put it bluntly, what the hell is going on here?
WallStreetBets Lights A Fire To Torch The Shorts
All signs point to the WallStreetBets reddit forum, which has been massaging and stoking GME for months. The ball apparently really started rolling about four months ago with a post in WallStreetBets entitled "Bankrupting Institutional Investors for Dummies, ft GameStop." In it, Player896 attempts to make a case for GameStop's financials, and the potential for an upside in the stock to stick it to shorts who have been praying for the stock's demise for years.
After all, who could blame the shorts for latching on to a company like GameStop in hopes of seeing its stock price plummet. Sales were down for 2020 (despite the 2020 gaming boom brought on by the COVID-19 pandemic), physical game sales are being overrun by digital downloads, and GameStop's bastion in local malls has been eroding at a rapid clip. Player896 was unfazed, however, writing, "Each year their gross margins contract with net income in the red these past few quarters. Everybody has written them off as the easiest short in the world, however I'm going to try to explain what’s going on and tell you that buying GameStop may not be as bad as you think."
The redditor pointed to the incoming next generation of consoles, the upside of gamers trading in their older consoles, GameStop shifting its attention more to digital game downloads, its branded credit card, and its Loyalty Program as positive factors for the company. And we also can't forget the rather curious partnership with Microsoft announced in October that sees GameStop getting a share of revenue from Xbox gamers. DOMO Capital Management explained in a tweet at the time:
Today $GME confirmed with @DOMOCAPITAL that the agreement with $MSFT includes revenue sharing on all downstream revenue (i.e. digital downloads and digital content) from any device that GameStop brings into the @Xbox ecosystem. GameStop now meaningfully participates in digital.
Couple that with a solid balance sheet, and redditors started using it as fuel to attack the shorts, and send GME shares soaring.
"GameStop is currently nearing $10. 70% of the shorts are underwater," wrote Player896 in mid-September. "Even if you don’t believe that any of their initiatives will work you have to admit that the company will be able to continue operating for another two years off the new console hype alone. When the stock hits roughly $15, we can expect to see several margin calls trigger a f**king massive short squeeze."
It also helps that Michael Burry of The Big Short fame, took a position in the company, along with Ryan Cohen (Chewy). Those big names threw their weight around, which was more than enough to get redditors ready for the financial ride of a lifetime.
What Will The Fallout Be From This Remarkable GME Run?
WallStreetBets is currently 2.4 million members strong (or degenerates as it calls them), which is self-described as "Like 4chan found a Bloomberg Terminal."
Members Degenerates have been buying into GME in large enough numbers to actually move the stock. And it's moving at an incredible rate that is not quite like anything anyone has seen in recent years. It's resulted in a devastating blow to shorts, with CNBC's Jim Cramer opining on Thursday when GME was hovering below $70/share, "$GME, squeeze of a lifetime. Not since Resorts International have I seen one like this... Now you see why I spent so much time tweeting about it?"
So, this little meme-stock -- which according to CNBC is the most shorted stock on the U.S. market -- is bringing in a gravy train of riches for the little guy investors that got in early, while the massive financial institutions looking to short are biting their nails in the short squeeze. And right now, there appears to be no sign of this train stopping.
Today, shares took another unfathomable leap, closing for the day at $147.98 -- a 92 percent increase for the day. As of this writing, the shares are up another $66 after hours to $213. At some point, the meme-fueled GME madness will have to come to an end, and there will be plenty of winners and losers to go around when the dust settles. But the rest of us can just sit back and admire this GameStop gold rush from afar without having to get our hands dirty.