GameStop, Reddit, and how people are investing in the Fortune 500 company now
Game store drama
The name is GameStop, and before you think it's a newfangled app/business in the market, it's not. But recent events have caused its name to skyrocket to fame — or rather contribute to the surge of income particularly in the world of stocks. So much so that a 10-year-old has recently cashed in his stocks (procured by his mother) and made a small fortune. So really, what is GameStop? Why is the Internet freaking out over a games store? Here's the lowdown.
Let us start with the basics:
What is GameStop?
GameStop is a Fortune 500 company from Grapevine, Texas. It is a digital-first omnichannel retailer that offers games and entertainment products in its over 5,000 stores and e-Commerce properties across ten countries. Through its family of brands, GameStop offers a selection of new and pre-owned gaming consoles, accessories as well as videogame titles in both physical and digital format. With a unique buy-sell-trade program, gamers can trade in video game consoles and accessories, as well as consumer electronics for cash or in-store credit. But with the current COVID-19 situation, GameStop saw a massive drop in traffic and business.
Reddit's involvement in all of these
There is one forum on Reddit called Wallstreetbets. Where users discuss stocks, shares and where they will invest in next, it contains more than four million users. Thousands of amateur investors decided to band together to buy stocks in struggling companies like GameStop. Due to all these investors, this has caused GameStop's stock price to increase, drastically causing major investors to lose billions of dollars.
Things escalated quickly...
Things started looking well for GameStop due to the pandemic. Most products and video games sales are now being moved and sold online with fewer people going out to shop. Even then, while GameStop is still in business, not many believed it will grow and get better again.
Like many companies who were in the red, GameStop was subjected to 'Short Selling'. Whereby investors borrow shares of stock to sell and repurchase them later on to return them. By doing this, it enables them to pocket the profits if the stock price goes down.
GameStop was one of the companies that many hedge funds (companies that do Short Selling) had bet on to lose its value. But due to the massive number of people in the Wallstreetbets Reddit forum that swapped tips and bought shares in GameStop, the demand raised the stock price massively. Nobody saw that coming — hence everyone who had bet on it dropping value had to buy their shares back.
On the 29th of January, activity around the stock spiked, showing an increase of volume, indicating a short squeeze. Meaning people who had bet against the store had to give up and take losses.
With a decent amount of media attention on Wallstreetbet recently, a boost in coverage brought the story out of the financial world and into the mainstream. GameStop shares went from trading at around $43, significantly more that it traded for at the beginning of the year, to as much as $380. In a nutshell, it became one of the most traded stocks on the market. Even the world's wealthiest person, Tesla's CEO Elon Musk, has publicly battled against short sellers, by tweeting "Gamestonk!" with a link to the Wallstreet bet forums. Referencing GameStop and "stonk", Internet slang for stock.
— Elon Musk (@elonmusk) January 26, 2021
Where that leaves us now
For some involved, it was something fun, exciting, and definitely one to pass the time with. An experiment to see the power of social media and the Internet.
Well but for many, it was the aim to make stockbrokers and hedge funds lose money. Threads on Reddit included users saying it was payback against big money companies who were seen as causing the financial crash in 2008. "It seems to be a generational fight all about robbing the rich to give to the poor," commented analyst Neil Wilson. Some users on Reddit have commented that they have donated their earnings to charity afterwards.
The Internet lapping it up
Of course, there had to be memes.
GameStop sitting amongst Tesla and Amazon after reddit users make it a Fortune 500 company pic.twitter.com/AVUtcjs6gl— Jordan Deeb (@Jordan_Deeb) January 27, 2021
GameStop joining Amazon, Google and Tesla as a Fortune 500 company pic.twitter.com/GO1UhdSb39— Dwight K. Schrute (@DwightSchrute_) January 30, 2021