GameStop & Reddit Traders: A War on Wall Street

Why GameStop’s stock surge is shaking Wall Street

Can millennials save GameStop? “Subprime kids” have changed the fate of GameStop, which was on the brink of bankruptcy. 

Shares of the bricks-and-mortar video game retailer surged 1,625% last month with 400% just last week, as share owner led by Reddit thread “WallStreetBets” piled into the stock.

But will it be enough to save the company? According to MSNBC, the share lost “its momentum” on Tuesday, where it lost 60%. GameStop’s stock has lost 70% of its value since Friday.

Nonetheless, this event could be a strong warning to the traditional Wall Street shareholders that the new generation, mostly investing through Robinhood, might be up to something new.

When predictions are wrong

GameStop is America’s first video game retailer store chain. To many shareholders, it has a sentimental value: in the thriving nineties, where video games were a popular mass-entertainment for young people, GameStop was a popular place to hang out.

It is no surprise that many millennials have bought shares of this company, long-time sought after and admired. On the other hand, traditional shareholders – and thus older – from Wall Street did bet on the end of the company. With online video game streaming – such as Twitch, acquired by Amazon in 2014 for $1 billion, many analysts predicted GameStop would soon go bankrupt.

But this was without counting on new threads of media, such as Reddit, where the new generation of shareholders – including these GameStop shareholders and nineties nostalgics – are sharing information and influencing each other.

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Wall Street Bets made GameStop surge 1,625%

Back in December, GameStop shares were worth a little less than 20 dollars. In order to help the company survive, Reddit users encouraged each other to trade GameStop.

As a result, the share was being traded at $483 in the middle of last week . “Short interest in GameStop as a percentage of shares available for trading dropped to about 53% from over 110% a week ago, according to data from S3 Partners”, adds MSNBC.

Gamestop stock price (GME)

finviz dynamic chart for  GME

Volatile stocks hurt the market

As a result, many shareholders lost millions worth of stocks within a few days. 

“The victims in the GameStop experiment have and will continue to be the Robinhood investors storming the gates of capital markets … without the size, the endgame plan, and the mathematical option pricing expertise to succeed,” PIMCO co-founder Bill Gross said in a note. “Even without regulatory action, the plan was doomed from the beginning.”

On Wednesday, NYC-based Dow Jones dipped more than 100 points, falling for the first time in three days. Experts have concluded that the “synthetic rise” of GameStop shares was simply not sustainable and would not, in any case, be a good strategy. 

However, shares from GameStop were rising by 7% on Wednesday, which shows that viral campaigns might have a stronger impact than what analysts predicted. 

The above content is considered to be market commentary information and shall not be perceived as independent investment research or investment advice. 

 

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.