GameStop and their miraculous, spectacular, very good, not bad week

What gamers are talking about, boiled down, in 2:46 minutes.

What’s being boiled down today?

GameStop, the brick-and-mortar video game retailer, recently experienced a massive surge in share price of approximately 1,400% since the start of the year. However, such investor interest may not necessarily translate with gamers.

Goliath, meet r/wallstreetbets

Credit: The Business of Business

What’s the fuss?

Many thought this company was going the way of Blockbuster. That was before a merry band of retail investors decided to become a force of nature — buying the stock in massive amounts against Wall Street’s will.

The situation

Last December, GameStop announced that they closed 462 of their locations. Coupled with declining in-store sales and millions of dollars racking in debt, Wall Street made GameStop one of the most shorted equities in the world (short sellers make money when stocks fall).

These short sellers’ expectations went awry when WallStreetBets, a prominent Reddit community, decided to prop up the price by purchasing and holding the stock in large amounts. Their success in doing so has been very detrimental to these short squeezed investors, having posted massive losses as they exit their positions. In response, trading GameStop as well as other targeted “nostalgia” stocks, such as the movie theater chain AMC, have been intermittently halted by the market throughout the week with some brokerages refusing to allow people to purchase the stock altogether.

This movement doesn’t necessarily have to do with money, it’s about fighting back against predatory short sellers and a system that allows these institutions to do exactly what retail investors are doing now. With almost 3 million members in WallStreetBets and millions more flying the flag, the message is certainly being heard.

Boiling it down

People love sticking it to the man, but it seems investor enthusiasm may not be mirrored by gamers. Historically, the stores have been historical staples of the gaming community for many years. Lately, GameStop is mostly infamous for ripping customers off with their ridiculously low trade-in prices or poorly treating their staff. Keep in mind, nothing about GameStop itself has warranted this appreciation in value—they haven’t created a hit app or discovered a COVID-19 vaccine. Despite changes to their business model, in-store sales were disappointing compared to expectations, even before the pandemic hit.

A key reason why GameStop is one of the most highly shorted stocks is because they still have yet to overcome the hurdle that is online retail. Sure, GameStop has an ecommerce arm which has grown in the advent of the pandemic. However, with steep competition from online retailers in addition to brick-and-mortar stores, many investors still see GameStop going the way of Blockbuster.

Now the finance angle — Blockbuster stock has actually gone up more than 750% since Tuesday, as collateral of WallStreetBet’s revolution. This increase in wealth by the company with one store left has corresponded with an increase in wealth from every day investors. This trend has the finance press reeling, calling foul against these traders of bending the “noble” system. In the words of Robert Reich, former US Secretary of Labor:

When hedge funds billionaires move markets, they get huge bonuses. When ordinary Americans move markets, they get shut down by Wall Street.

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