Many of today's adults grew up in GameStop stores. They bought and sold consoles and games. They lined up for takeoffs. Now some of these people have gotten rich Purchase of the company's shares and encourage their friends on Reddit too buy it too. GameStop's shares have risen higher than ever in the past few weeks, and all because activity among social media investors drove it up. Wall Street had bet heavily that the company would fail, but as the price continued to rise, investors were forced to reset their stakes. That caused the stock to skyrocket and then swing wildly.
Jaime Rogozinski, the obvious founder of the Reddit community at the center of it all, told the Wall Street Journal that it was like "a train wreck that happens in real time". Keith Gill, the trader in the Reddit community who helped kick off the fight, told the newspaper he "wasn't expecting this".
On Thursday alone, GameStop stock hit an all-time high of $ 492.02 per share and then fell more than half a minute later. It closed trading on Friday at $ 325.
GameStop itself hasn't changed radically in the last month. It is still a difficult retailer facing an uncertain future with the rising tide of online shopping. But the stock has risen up to 1,800% since the start of the year - that's not a typo. That dynamic resulted in Wall Street investors betting against the company's future losing billions of dollars, and the fuss is over drive the hype even further.
Last week, the financial world watched in shock as GameStop shares rose to unthinkable levels. Even Elon Musk tweeted about it and referred his 43 million followers to a link from the Reddit community investing in GameStop called r / WallStreetBets.
At the end of regular trading on Wednesday afternoon, the stock was trading at $ 347.51 per share, after all-time lows of around $ 3.30 per share in the summer of 2019. In after-hours trading, it fell more than 37%, only to resurrect. There were even more dramatic moves on Thursday, with the stock rising to $ 492.02 before falling nearly 60% to close at $ 197.44. In over-the-counter trading, it rose again to $ 311.99.
In the meantime, either exchange trading apps appeared Stop or limit purchases of GameStop stock for at least part of the day.
The popular stock trading app Robinhood drew attention to something seemed to be one of the most restrictive new rules. People had raised concerns about Robinhood for some time, saying it had "gamified" stock trading to a potentially dangerous level. Now it is being accused of total market manipulation, including through at least one class action lawsuit that has already been filed. For its part, Robinhood said Friday that market rules had effectively forced it to put these restrictions in place.
Continue reading: GameStop's stock spike is fueled by slang from Reddit's r / WallStreetBets community. Here's what it means
"We're seeing a phenomenon I've never seen before," said Jim Cramer, Wall Street commentator at CNBC and former hedge fund manager, during a segment Monday. And GameStop could just be the beginning. "It's crazy."
This may seem like a strange story about Wall Street investors being overrun by excited social media users. For some, it was fun to see these investors get taken to the cleaners by a group of people posting rocket emojis and saying that GameStop stocks will go "to the moon".
For some on Wall Street, however, this is the latest sign of how social media can transform everyday life. Twitter changed the world of news and politics. YouTube and Instagram have changed the fashion, beauty, and entertainment industries. Now Reddit takes on Wall Street.
These worlds have also overlapped. Fans of Korean pop groups known as K-Pop-Stans post a barrage of tweets about their favorite stars in an attempt to overwhelm racist hashtags on Twitter. And TikTokers banded together to confuse President Donald Trump's re-election campaign.
Now, encouraged Reddit communities are talking about taking over other businesses that Wall Street is generally betting against. The Reddit crowd is already trying to promote BlackBerry, the once popular cell phone maker, which is now primarily focused on selling enterprise software. And Redditors are targeting ailing film chain AMC as well, pushing their stock from around $ 2 per share to over $ 8 in after-hours trading. On Wednesday afternoon, it closed at $ 19.90 per share before falling to $ 12.75. On Thursday it fell even further to $ 8.63 per share.
The actions of the Reddit community had such an impact that TD Ameritrade took the extraordinary move last week Limit stock trading on Game Stop and AMC stocks, "out of caution in the face of unprecedented market conditions". Nasdaq also warned against ceasing trading in stocks it believes are being manipulated by social media.
Meanwhile, traffic to the Reddit community at the center of the drama, r / WallStreetBets, is breaking records. According to a report by Mashable, r / WallStreetBets counted 73 million page views for its discussion forums on Tuesday. In the past week around 700 million page views were recorded. Reddit is already the 46th most popular website on the Internet according to comScore, and had more than 78 million visitors in December. And on Wednesday, the Reddit mobile app reached its biggest day of downloads, industry watcher Apptopia said.
But when the memes stop and the excitement subsides, at a time when gaming is increasingly moving towards streaming and the idea of going to a physical store is still a nerve-wracking prospect, GameStop is going back to that troubled video game dealer pandemic. At that point, stock analysts say, the value of those who still hold stocks will evaporate.
"It's unnatural, crazy and dangerous," said Michael Burry, a well-known GameStop investor and one of the themes of the book and the film The big short, wrote in a now deleted tweet. Markets Insider reported that its investment in the company rose from around $ 17 million to $ 250 million on Tuesday.
Who is listening
Michael Pachter, a longtime video game industry analyst at Wedbush Securities, said he hasn't even bothered to update his stock price expectations for GameStop since stocks went insane last week. "Who is listening?" he said in an interview last week. "Nobody cares what a sell-side analyst is saying."
For him, there are reasonable explanations as to why people might be a little excited about GameStop. One of its newest board members, Ryan Cohen, made Chewy one of the largest online pet products retailers in the world before selling it to PetSmart. GameStop is also on its way to being profitable again.
However, this does not even begin to explain the price of GameStop stock. "It's a Ponzi scheme," Pachter said, referring to a form of fraud that appears to make money but is actually only supported by funding from new investors. "There's a point where it'll go down."
He suspects this could happen after the company released its quarterly results in March. At this point, executives and investors on the board of directors may sell their shares.
One question that analysts are watching is whether Reddit investors will lose their millions if the stock eventually falls back to earth. Rogozinski, the man who helped found the Reddit community, said their approach to investing is more akin to gambling than traditional analysis and strategy. Its members, whom the community calls "degenerate," often encourage each other to put all of their money in one stock and ride it up and down. Your contributions are interrupted with phrases like "hold the line" and "diamond hands" (hold your stocks for a long time) and YOLO (you only live once).
He told the WSJ that he never thought the Reddit community would transform from its inception to what it has become. "It's a bit like watching one of those horror films where you see the bad guy slowly walking up the stairs," said Rogozinski.
Even Keith Gill, the community member who sparked the first battle for GameStop, told the Journal he was surprised at what happened to it.
"I thought this deal would be successful," he said, "but I never expected what happened last week."
In the meantime, the social media hype continues on Reddit, where users declare their intention to buy and hold more GameStop stock in order to raise prices even further.
"My mom told me it was time to sell," one Reddit user wrote in a post on GameStop's stock movement. "Shall I find a new mother?"
"Yes," replied another user. "The answer is yes."
Continue reading: Why GameStop, BlackBerry stocks suddenly jumped thanks to Reddit
