Tag Archives: GameStop

Business

Stock Futures Point to More Losses; GameStop in Focus

Leave a comment

U.S. stock futures dropped, putting Wall Street on course to extend losses amid investor concerns about a slowing economic rebound and froth in markets, exemplified by the wild trading in retailer

GameStop.

Futures tied to the S&P 500 fell 0.2% after the benchmark stocks gauge posted its biggest two-day decline since October. Contracts for the Nasdaq-100 declined 0.8%, after earnings from several technology giants including

Apple

underwhelmed investors late Wednesday. Futures tied to the Dow Jones Industrial Average, which has fallen for five-consecutive days in its longest losing streak since February, were roughly flat.

The stumble in stocks follows a strong start to the year that some investors say had pushed share prices beyond levels justified by corporate fundamentals. The selloff has taken place amid wild swings in individual stocks including GameStop and

AMC Entertainment,

fueled by a battle between day traders and hedge-fund professionals.

“There is some over-excitement in the market,” said

Olaf van den Heuvel,

chief investment officer for

Aegon

Asset Management in the Netherlands, pointing to the surge in GameStop shares as one example. “It was bubble territory.”

Individual stocks remained volatile ahead of the bell in New York. GameStop shares jumped 28%, having rocketed 135% Wednesday. AMC clawed back earlier losses to climb 6.1%, extending Wednesday’s gains of more than 300%.

The stumble in stocks has taken place amid wild swings in individual shares, including GameStop and AMC Entertainment.



Photo:

Courtney Crow/Associated Press

The slow vaccine rollout and Covid-19 restrictions in major economies have prompted investors to take some money off the table, Mr. van den Heuvel added. He said Aegon would likely view the selloff as a chance to buy risky assets when markets settle down.

Technology stocks dropped ahead of the bell in New York. Shares of Apple fell 2.9% after the iPhone maker reported its most profitable three months on record but didn’t provide specific revenue guidance for the current quarter.

Tesla dropped 6.1% after the electric-vehicle maker—whose shares have soared in recent months—posted its first full-year profit but missed Wall Street’s expectations.

Facebook,

which posted record net income but warned that uncertainty from regulatory probes and ad-targeting limits could create headwinds, fell 0.8% in premarket trading.

In one sign of rising risk aversion, the yield on the benchmark 10-year U.S. Treasury note dropped below 1% for the first time since Jan. 6, before climbing back to 1.008%, according to

Tradeweb.

Bond yields fall as prices rise. Falling yields are often an indicator that investors see the economic outlook weakening.

The dollar strengthened against various currencies including the Australian dollar and the Korean won. The WSJ Dollar Index, which measures the greenback against a basket of other currencies, rose 0.2%.

Comcast,

American Airlines

and

Mastercard

are scheduled to publish results before markets open. Investors will also parse data on jobless claims—due to be published at 8:30 a.m. ET and expected to show that the number of workers seeking benefits declined last week—for fresh clues about how the economy is weathering the pandemic.

The Federal Reserve maintained its easy money policies Wednesday, saying that business activity has softened with the resurgence of Covid-19 cases.

“Any removal of fiscal stimulus any time soon could lead to a falter in the recovery,” said

Mary Nicola,

a portfolio manager for PineBridge Investments.

The selloff in U.S. stocks extended overseas. The pan-continental Stoxx Europe 600 fell 0.7%, led lower by shares of oil-and-gas and financial companies.

Shares in several heavily-shorted European stocks that shot up Wednesday, when the short squeeze spread beyond the U.S., came under pressure. Commercial real-estate firm

Unibail-Rodamco-Westfield

lost 2.4% and German drugmaker

Evotec

fell 4%.

“It is nerve-racking,” said

Remi Olu-Pitan,

a fund manager at Schroders, referring to the big moves in stock prices fueled by day traders swapping tips online. She said the volatility likely induced some professional investors, including those caught with loss-making short positions, to take money off the table, weighing on broader markets.

“You will see more violent pullbacks,” Ms. Olu-Pitan said. “There are parts of the market that are in a bubble.”

Among other individual movers,

Prudential

dropped 7.5% after the insurer said it was weighing an equity offering and would separate off its Jackson National arm in the U.S. Diageo gained 4.8%, as analysts cheered strong first-half sales in North America by the alcohol producer.

Markets broadly retreated in Asia. Hong Kong’s Hang Seng dropped 2.6%, the Shanghai Composite Index fell 1.9% and Japan’s Nikkei 225 declined 1.5%. Container-shipping giant Cosco Shipping led losses in mainland China, sliding 10%.

In a sign of jitters in Chinese markets, money-market rates continued to rise. The one-week Shanghai interbank offered rate rose 0.012 percentage point to 2.981%, its highest since 2015, according to FactSet.

Short-term borrowing costs have risen in recent days as the People’s Bank of China unexpectedly drained funds from the financial system. Earlier this week, a major business newspaper also published remarks by

Ma Jun,

an adviser to the central bank, who warned of asset bubbles emerging due to loose monetary policy.

Tai Hui,

chief Asia market strategist at J.P. Morgan Asset Management, said new pockets of coronavirus outbreaks in China had also dented investor sentiment.

Write to Joe Wallace at Joe.Wallace@wsj.com and Chong Koh Ping at chong.kohping@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

AMC, GameStop stock go wild: Reddit’s ‘insane’ ‘Ponzi scheme’ can’t last

Leave a comment

GameStop shareholders are watching piles of cash come in. But for how long?


CNET

GameStop is one of those stores nearly every gamer has a story about. And for good reason. A lot of today’s young adults spent their youths in the company’s stores, lining up for new consoles, as well as buying and selling used video games. Now some of those people are making a fortune buying the company’s stock and cheerleading their friends on Reddit to buy it too, causing the stock to swing wildly like never before.

Though GameStop itself hasn’t fundamentally changed much in the past month, its stock has shot up more than 10,400% — that’s not a typo. This dynamic has led Wall Street investors who bet against the company’s future to lose billions of dollars, and the excitement is driving the hype even further.


Now playing:
Watch this:

What does GameStop’s skyrocketing stock have to do with…



10:15

Over the past week, the financial world watched in shock as GameStop stock rose to unthinkable levels. Even Elon Musk tweeted about it, pointing his 43 million followers to a link of the Reddit community investing in GameStop, called r/WallStreetBets.

By the close of regular trading Wednesday afternoon, the stock was $347.51 per share, up from from historic lows of around $3.30 per share in the summer of 2019. And then in after-hours trading, it dropped more than 37%, only to rise again.

Amid all this, the people behind r/WallStreetBets hid it from public view, requiring people to ask for an invite into the group. Meanwhile, the popular chat app Discord banned the community outright after what it said were repeated violations of its hate speech rules (and not for discussing finance).

Read more: GameStop’s stock spike fueled by slang from Reddit’s WallStreetBets community. Here’s what it means

“We’re seeing a phenomenon that I have never seen,” Jim Cramer, a Wall Street commentator on CNBC and a former hedge fund manager, said during a segment Monday. And GameStop could be just the start. “It’s insane.”

This may seem like an oddball story about Wall Street investors being overrun by excited social media users. For some, it’s been fun to watch those investors get taken to the cleaners by a bunch of people posting rocket emojis, saying GameStop shares will go “to the moon.”

Reddit users are betting they can take GameStop shares “to the moon.”


Getty Images

But for some on Wall Street, it’s the latest sign of how social media can upend everyday life. Twitter has changed the worlds of news and politics. YouTube and Instagram have transformed the fashion, beauty and entertainment industries. Now Reddit is taking on Wall Street.

These worlds have overlapped as well. Fans of Korean pop groups, known as K-pop stans, post floods of tweets about their favorite stars to overwhelm racist hashtags on Twitter. And TikTokers banded together in attempts to confuse President Donald Trump’s reelection campaign.

Now emboldened Reddit communities are talking about taking on other companies that Wall Street is broadly betting against. The Reddit crowd is already attempting to push up BlackBerry, the once-popular handset maker that now focuses primarily on selling business software. And Redditors are also targeting the struggling movie chain AMC, pushing its stock from hovering around $2 per share to more than $8 in after-hours trading. By Wednesday afternoon it closed at $19.90 per share before dropping to $12.75

The Reddit community’s actions have had such an impact that TD Ameritrade took the extraordinary step of limiting share trading on Game Stop and AMC stocks, “out of an abundance of caution amid unprecedented market conditions.” Nasdaq as well warned that it will halt trading on stocks it thinks are being manipulated by social media.

Meantime, traffic to the Reddit community at the center of the drama, WallStreetBets, is breaking records. WallStreetBets counted 73 million page views for its discussion boards on Tuesday, according to a report by Mashable. Over the past week, it’s hit about 700 million page views. Reddit is already the 46th most popular site on the web, notching more than 78 million unique visitors in December, according to comScore.

But when the memes stop and the excitement goes away, GameStop will go back to being that struggling video game retailer at a time when gaming is increasingly moving toward streaming and the idea of stepping into a physical store is still a nerve-wracking prospect during a pandemic. At that point, stock analysts say, whoever’s left holding shares will see their value evaporate.

“This is unnatural, insane and dangerous,” Michael Burry, a prominent GameStop investor and one of the subjects of the book and movie The Big Short, wrote in a now-deleted tweet. His roughly $17 million investment in the company has ballooned to $250 million as of Tuesday, Markets Insider reported.

Many gamers spent their childhoods going to GameStop.


Getty Images

Who listens?

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 shares started going crazy last week. “Who’s listening?” he said. “Nobody cares what a sell-side analyst says right now.”

To him, there are reasonable explanations why people could be somewhat excited about GameStop. One of its newest board members, Ryan Cohen, helped turn Chewey into one of the largest online pet product sellers in the world, before selling it to PetSmart. GameStop’s also on a track to being profitable again.

But that doesn’t come close to explaining GameStop’s share price now. “It’s a Ponzi scheme,” Pachter said, referring to a form of fraud that appears to make money but in fact is only propped up by funding from new investors. “There is a point where it’ll go down.”

He suspects that may happen after the company reports its quarterly results in March, at which point executives and investors on the board are allowed to sell their shares.

In the meantime, the social media hype is continuing on Reddit, where users are declaring their intention to buy and hold more GameStop shares, all to send prices even higher.

“My mom told me it’s time to sell,” one Reddit user wrote on a post about GameStop’s stock moves. “Should I find a new mom?”

“Yes,” another user answered. “The answer is yes.”

See also: Why GameStop, BlackBerry stocks suddenly jumped, thanks to Reddit



Read original article here

Business

GameStop, Microsoft, AMC: What to Watch When the Stock Market Opens Today

Leave a comment

Here’s what we’re watching ahead of Wednesday’s opening bell.

—U.S. stock futures slipped, as investors awaited a bumper day of major earnings reports and a meeting of the Federal Reserve.

S&P 500 futures were down 1.1%, while futures tied to the technology-heavy Nasdaq-100 edged down 0.7%. Dow Jones Industrial Average futures fell 1.1%.

What’s Coming Up

—Earnings updates expected:

Tesla,

TSLA -0.71%

Apple

AAPL -0.22%

and

Facebook

FB -2.39%

are due after the close. The electric-car maker is expected to record its first full-year profit.

The Federal Reserve releases a policy statement at 2 p.m. and Chairman Jerome Powell holds a press conference at 2:30 p.m.

Market Movers to Watch

—And then there’s GameStop. Its stock popped again ahead of the bell, soaring 73% in wildly volatile trading. CNBC reported that Melvin Capital, a hedge fund that has posted big losses so far this year in part because of a wager against the videogame retailer’s stock, had closed out its short position on Tuesday afternoon. The report caused a stir on the online platform Reddit—popular among day traders waging a battle against hedge-fund short-sellers—where some members wrote that it was an attempt to pull

GameStop

GME 109.79%

‘s share price back down. And

Elon Musk

weighed in on the stock again last night with a tweet, “Gamestonk!!“

—The show must go on: Another heavily shorted stock, movie-theater operator

AMC Entertainment Holdings,

AMC 133.87%

saw its shares vault more than 350% higher premarket.

—Headphone maker

Koss

KOSS 72.20%

has also joined the party, and its shares jumped 109% premarket.

—

Bed Bath & Beyond

BBBY 28.21%

resumed its upward trajectory, up 20% ahead of the bell. Online traders point to an early 2020 change in management and the fact that the company is buying back shares as signs that the share price will continue to increase.

—

Microsoft

MSFT 1.44%

shares are up 2.1% premarket. The software giant’s profit and sales jumped, propelled by pandemic-fueled demand for videogaming and accelerated adoption of its cloud-computing services.

—

Boeing

BA -4.46%

shares fell 3.3% premarket after the plane maker reported its biggest-ever annual loss and took a huge financial hit on its new 777X jetliner, reflecting the pandemic’s worsening toll.

—

Abbott Laboratories

ABT 1.12%

shares added 1.5% premarket after it logged hearty profit growth in the latest quarter as a surge in demand for its Covid-19 diagnostics services contributed to higher revenue.

—

Starbucks

SBUX -5.30%

slipped 3% premarket after the coffee chain reported that sales fell during the holiday quarter but showed signs of recovery, particularly in China. Its operating chief

Roz Brewer

is leaving to become CEO of

Walgreens

WBA 6.21%

Boots Alliance, where she’ll be the only Black woman leading a Fortune 500 company. Walgreens shares climbed 5%.

A Walgreens store in Tomball, Texas, Jan. 16, 2021.



Photo:

Jeff Lautenberger for The Wall Street Journal

—

AT&T

T -1.11%

shares slipped 1.3% premarket after it reported a fourth-quarter loss as it booked a $15.5 billion charge on its pay-TV business.

—Chip maker

Texas Instruments

TXN -2.81%

‘s shares slipped 1.7% premarket even though quarterly results and outlook both topped Wall Street estimates after Tuesday’s close.

Market Fact

Retail order flows have reached 20% of the U.S. stock market’s total, according to

UBS

research, twice what they were in 2010.

Chart of the Day

GameStop shares have become a favorite of online traders who are seeking to make money from buying options.

Must Reads Since You Went to Bed

Online Traders Helped Some Unlikely Stocks Soar

Jack Ma’s Ant Plans Major Revamp in Response to Chinese Pressure

Renewed Demand for Treasurys Quells Fears of Rising Rates—for Now

Goldman CEO David Solomon Takes $10 Million Pay Cut for 1MDB Scandal

Biden’s Candidate for SEC Chairman Is Expected to Be Tough

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



Read original article here

Business

Melvin Capital, hedge fund targeted by Reddit board, closed out of GameStop short position Tuesday

Leave a comment

Melvin Capital closed out its short position in GameStop on Tuesday afternoon after taking a huge loss, manager of the fund Gabe Plotkin told CNBC’s Andrew Ross Sorkin.

The brick-and-mortar videogame retailer, hedge funds’ most-hated stock, was targeted by an army of retail investors who marshaled against short sellers in online chat rooms. In the Reddit forum “wallstreetbets” with more than two million subscribers, rookie investors encouraged each other to pile into GameStop’s equity and call options, creating massive short squeezes in the name.

CNBC could not confirm the amount of losses the firm took on the short position. Citadel and Point72 have infused close to $3 billion into Melvin Capital to shore up the fund’s finances. Plotkin told Sorkin that the speculation that the firm would file for bankruptcy is false.

GameStop shares have more than doubled this week alone to nearly $150 apiece, driving its January gains to 685%. The stock was worth just $6 four months ago.

GameStop shares gained about 60% in premarket trading Wednesday, after popping more than 100% earlier in the session.

Amid GameStop’s explosive rally, short sellers have accumulated losses of more than $5 billion year to date in the stock, including a loss of $917 million on Monday and $1.6 billion on Friday, according to data from S3 Partners.

Short seller Andrew Left of Citron Research said Wednesday that he has covered the majority of his short position in GameStop at a loss. He previously said GameStop will fall back to $20 a share “fast” and called out attacks from the “angry mob” that owns the stock.

Investor Michael Burry said in a now-deleted tweet Tuesday that trading in GameStop is “unnatural, insane, and dangerous” and there should be “legal and regulatory repercussions.” Burry shot to fame by betting against the housing bubble and was featured in Michael Lewis’ book “The Big Short.”

The U.S. Securities and Exchange Commission declined to comment.

Social Capital’s Chamath Palihapitiya jumped into the controversial name, saying in a Tuesday tweet that he bought GameStop call options betting the stock will go higher. His tweet seemed to intensify the rally in the previous session. The stock ended the day 92% higher at $147.98.

Elon Musk after the bell Tuesday commented on the mania on Twitter and linked to the “wallstreetbets” Reddit chat room. The Tesla CEO tweeted to his 42 million followers “Gamestonk!!” The comment appeared to help send GameStop shares soaring in extended trading Tuesday.

Read original article here

Business

Michael Burry Calls GameStop Rally ‘Unnatural, Insane’ – Bloomberg

Leave a comment

  1. Michael Burry Calls GameStop Rally ‘Unnatural, Insane’ Bloomberg
  2. GameStop’s Rise Is ‘Insane and Dangerous,’ Says ‘Big Short’ Investor Barron’s
  3. ‘Big Short’ investor Michael Burry blasts Reddit-fueled GameStop rally as ‘unnatural, insane, and dangerous’ Business Insider
  4. The Hedge Fund Genius Who Started GameStop’s 4,800% Rally Now Calls It “Unnatural, Insane, And Dangerous” Forbes
  5. ‘Big Short’ investor Michael Burry made a 1,500% gain on GameStop during its Reddit-fueled rally Business Insider India
  6. View Full Coverage on Google News

Read original article here

Business

GameStop short-seller down 30% this year gets $2.8 billion bailout from the firms of billionaire investors Steve Cohen and Ken Griffin

Leave a comment

Billionaire investor Steve Cohen.

Steve Marcus/Reuters

  • Steve Cohen’s Point72 and Ken Griffin’s Citadel are investing $2.75 billion in Melvin Capital.
  • Melvin is down about 30% this year as its short positions are getting hammered.
  • Day traders have bid up the stock prices of GameStop, Bed Bath & Beyond, and other popular shorts.
  • Visit Business Insider’s homepage for more stories.

A pair of billionaire investors are swooping in to support a short-selling hedge fund in its battle against an army of irreverent day traders.

Steve Cohen’s Point 72, Ken Griffin’s Citadel, and other partners are plowing a total of $2.75 billion into Melvin Capital, the hedge funds said on Monday. They will receive non-controlling revenue shares in Melvin in return for their money.

Melvin will welcome the cash injection as painful short bets have left it down 30% year-to-date as of Friday, The Wall Street Journal reported.

Scores of retail investors, including some members of Reddit forum r/wallstreetbets, have targeted heavily shorted stocks in recent weeks. They drove GameStop’s stock price up as much as 145% on Monday, Bed Bath & Beyond up 58%, BlackBerry up 48%, and AMC up 39%.

Melvin takes more negative positions than most of its Wall Street rivals, exposing it to potentially heavy losses. It owned “puts” – bets that a stock price will fall – on 17 US-listed companies including GameStop and Bed Bath & Beyond at the end of September.

The firm’s strategy has paid off in the past. Melvin has returned an average of 30% annually since its founding in 2014, and had grown its assets under management to $12.5 billion at the start of this year, The Journal said.

Gabe Plotkin, a former star portfolio manager at Cohen’s SAC Capital, quit to start Melvin in 2014. He counted Cohen as a day-one backer.

Read more: GOLDMAN SACHS: These 22 stocks still haven’t recovered to pre-pandemic levels – and are set to explode amid higher earnings in 2021 as the economy recovers

Read original article here

Business

GameStop short-sellers lost $1.6 billion in a single day as Reddit traders rebelled against them

Leave a comment

Lucas Jackson/Reuters

  • GameStop short-sellers have lost $3.3 billion betting against the stock in 2021, S3 Partners said.
  • Losses totaled roughly $1.6 billion on Friday alone as the stock rallied 51%.
  • GameStop has rocketed as Reddit traders drive bullish momentum to extraordinary levels.
  • Watch GameStop trade live here.

Investors betting against GameStop and the army of bullish retail traders have already lost billions in 2021.

Mark-to-market losses for GameStop shorts on a year-to-date basis reached $3.3 billion when trading closed on Friday, according to data from the financial-analytics firm S3 Partners. Losses totaled nearly $1.6 billion on Friday alone as shares rocketed 51% higher into the close.

GameStop stock has continued to climb as Reddit users and day traders have extended the unusual momentum trade into its third week. The company’s shares initially leaped on January 11 after it agreed with an activist investor to add three new directors to its board. The day’s gains drew in swaths of retail traders, including members of the popular WallStreetBets subreddit.

Online posts urging other investors to join the trade have since driven outsize bullish momentum for GameStop. The stock traded 115% higher as of 10:40 a.m. ET on Monday and is up more than 500% year-to-date.

Read more: BANK OF AMERICA: Buy these 31 unheralded stocks as the recovery’s hottest trades of recent months continue to gain strength in 2021

Though some think the gains have been fueled by a massive short squeeze, demand for shorting the stock remains strong. About 72 million shares – or 140% of GameStop’s float – were shorted as of Friday, according to S3. In the past seven days, the number of shares shorted climbed by 883,000, though the stock soared.

“There has been a queue of new short-sellers wanting to get short exposure in GameStop after its recent run-up,” Ihor Dusaniwsky, the managing director of predictive analytics at S3, told Insider, adding that brokers had been unable to meet the demand for shares to sell short.

Short-sellers and Wall Street have struggled to make sense of the retail-trader phenomenon. Only one firm, Telsey Advisory Group, has downgraded shares since they spiked earlier this month. The Street’s median price target is $11.96, implying a broad expectation of an 81% crash.

Read more: This actively-managed SPAC ETF amassed $60 million assets within a month of launching. Its founder breaks down how to pick blank-check firms – and shares 3 to watch in 2021.

Andrew Left of Citron Research, one of Wall Street’s most outspoken GameStop shorts, said on Friday that he would no longer comment on the stock. Left had posted a video on Thursday criticizing the bullish day traders and arguing that the stock would soon plummet to $20. WallStreetBets members chided Left with memes and derogatory comments.

The short-seller said on Friday that an “angry mob” of online traders had harassed him and tried to hack his Twitter account, leading him to end his commentary on the stock.

Left maintained his short thesis – but what began as a moderate short squeeze has evolved into a “vice-grip” on those betting against GameStop, Dusaniwsky said. He added that the stock’s extended rally would force shorts to reconsider their confidence in their position and likely kill off a great deal of GameStop bears.

Now read more markets coverage from Markets Insider and Business Insider:

Buy these 13 stocks poised to benefit from a boom in 5G smartphone adoption, UBS says – including one expected to surge 69%

Microsoft will leap another 20% as cloud-computing strength drives strong earnings, Wedbush says

US business activity picks up as manufacturing gauge hits record high, IHS Markit says

Markets Insider

Read original article here

Business

GameStop stock hits record high when short sellers clash with Redditors

Leave a comment

GameStop’s stock price, which had dropped steadily over the previous five years before beginning a climb last fall, closed at an all-time high on Friday following a tremendously volatile week in which Reddit-organized day traders made a lot of trouble for investment firms short-selling the stock.

Trading of GameStop stock on the New York Stock Exchange was halted twice Friday, but not before the price peaked at $73.09. It closed at $65.01, beating the previous record of $63.30 set on Dec. 24, 2007. GameStop closed on Thursday at $43.03, and when the surge began last week, it was around $20 a share.

What’s going on? Well, at the beginning of September, the stock started rallying out of the $5 doldrums where it had been for a little over a year. That’s because dog food tycoon Ryan Cohen (the founder of Chewy, which he sold for $3.35 billion in 2017) had just purchased a 10% stake in the beleaguered video game retailer. He and two allies have since joined GameStop’s board of directors, and those positions could help Cohen act on his tough talk about where GameStop’s priorities should be. Cohen says the Texas-based company needs to give up its continued brick-and-mortar retail focus altogether and move to “a technology-driven vision.”

What’s behind the eye-popping stock price surge this week, reports Ars Technica, is “a massive short squeeze bubble.” In the investing practice known as short selling, a party borrows shares of a stock and immediately sells them at the current market price; when the price later drops (as a short seller is betting it will), the short seller buys back the same number of shares to return them to the lender — and makes money by having to pay back less than what the shares were worth at the time of borrowing.

In this case, GameStop’s stock price is rising, forcing these short sellers to buy more shares at a higher price to cover their positions. That has put GameStop’s stock price in an upward spiral, one that analysts like Wedbush Securities’ Michael Pachter think will quickly come to an end.

“The smart money already got in and probably got out,” Pachter told Ars.

The smart money got in more than a year ago, reports Motherboard. Some of it came in from investors on the subreddit WallStreetBets, a community that styles itself as “Like 4Chan found a Bloomberg Terminal.” A Redditor there posted screenshots from 2019 of a $50,000 purchase of GameStop shares, when the stock price was below $1.

That’s because WallStreetBets (and others) reasoned that if they bought in to GameStop, short sellers would eventually have to cover their positions together, driving the price way up. “There is likely not an original GameStop-issued share left on the market,” noted one Redditor. In other words, GameStop has issued more shares than are actually available to buy. Higher demand plus scarce supply equals a higher price, of course, and short sellers buying up stock to cover their debts — along with, of course, interest from new investors looking to short the stock — is what’s driving the demand.

Citron Research is one of those short sellers, and on Friday the firm said it was no longer commenting on GameStop’s stock because “an angry mob” had made it a dangerously volatile stock, Bloomberg reported. Citron also alleges that these miscreants had tried to hack the company’s Twitter account, after the company criticized the stock on Tuesday and then made plans for a livestream on social media to discuss that.

GameStop’s closing price on Friday gave it a market capitalization of $4.5 billion, almost 20 times higher than what the company was worth as of late July. But none of this means GameStop has actually recovered or saved itself as a business. Indeed, its last quarterly earnings report, in December, showed revenues still declining and losses per share increasing over the same figures a year before.

In the past two years, the company has closed more than 750 stores out of the 5,700 locations it had as of 2019. The same year, the company got rid of top executives and fired more than 100 corporate staffers, in a round of layoffs that also gutted the staff of GameStop-owned Game Informer magazine.



Read original article here

Business

Why GameStop Stock Just Popped 21%

Leave a comment

What happened

Yesterday was supposed to be a bad day for mall-based videogame retailer GameStop (NYSE:GME). In a post on Twitter, short-seller Citron Research had threatened to post a livestream video laying out the “5 reasons GameStop [buyers] are the suckers at this poker game” and why GameStop stock would go “back to $20 fast.”  

The video didn’t arrive as promised, though, and GameStop didn’t go back at all. Instead, it went up 10%, and it’s going up another 21% today, as of noon EST.

Image source: Getty Images.

So what

Why is this happening? Some believe that GameStop short-sellers are suffering a short squeeze — and that’s probably true. It’s also true, though, that Citron failed to publish its livestream when promised, blaming “people hacking Citron twitter” for the delay yesterday.

The video did eventually come out, but it wasn’t live. In it, Citron head Andrew Left laid out his five reasons for selling GameStop, which basically run like this:

  1. Although there is a high short interest in GameStop stock, “there is no short squeeze happening” because there are still plenty of GameStop shares available to borrow and short.
  2. Hardware sales grew 23% year over year in December, but GameStop’s sales declined 9%, so it is losing market share to Best Buy, Walmart, and Amazon.
  3. GameStop sells for 40 times next year’s EBITDA, which is really expensive.
  4. A Twitter mob is driving the stock price up, resulting in that high valuation.
  5. GameStop has more than $1 billion in debt and will probably sell stock to reduce its debt, diluting anyone who has bought into GameStop. 

Now what

I agree with most of those arguments — aside from the one about there being no short squeeze. Anyone who has sold this stock short, and who bets that it will go down, is probably at least a little nervous seeing it get more expensive.

As a reminder: When you sell a stock short, and it goes to $0, you make a profit of 100%. When you sell a stock short but it goes higher, your losses are potentially infinite. Ultimately, Citron believes that GameStop is a “failing mall-based retailer” — but it is GameStop short-sellers who are failing today.



Read original article here