The short squeeze is over: See the price of GameStop stock now
GameStop entered 2021 at the center of a Reddit-fueled railing against Wall Street that got everybody quite interested and even invested in the stock market. Teetering between profitability & bankruptcy for years, its momentary stratospheric rise to being worth over $30 billion got everyone talking. Now its worth has tumbled back down to just over $3 billion. Was this a missed opportunity? Let’s get into the details.
Reddit vs. Wall Street
Reddit has long been a hub for conversations around economic inequality. Discussions date back to the serious Occupy Wall Street movement of 2011, all the way to the troll-tastic r/wallstreetbets memes currently dominating social media. Since early January, GameStop’s stock price reflected several struggling companies that Reddit users felt were taken for granted. As a result, they rallied to raise it’s value.
Texas-based The Grapevine soon found themselves in unprecedented territory. Their stock price skyrocketed from $15 a share in late December to almost $350 a share by January 28th.
Amateur investors on Reddit banded together behind the company to send a message to Wall Street hedge funds, who had shorted GameStop’s shares. While several other heavily shorted stocks enjoyed rallies of their own, GameStop became synonymous with the movement after being mentioned by Elon Musk and several other celebrities.
Time sensitive decisions
As GameStop’s market value rose higher & higher to a peak of $33.7 billion, the company finally had a chance to pay off its debt. Totaling $216 million at the end of last October, the largely mall-based company’s value dropped as malls across the country experienced dwindling sales even before the coronavirus pandemic. Upon paying off its debts, the company would be able to fully transition into a digital gaming service.
However, GameStop chose not to sell any of their shares against the nudging of Wall Street pundits & advisors. While they could still sell their shares later if they wanted to, the opportunity to leap out of debt appeared to be slipping through their fingers. Investing apps like Robinhood and seemingly angry hedge funds came under fire for allegedly blocking more purchases of GameStop stock, and the price tanked fast.
Before long, GameStop’s fortune had literally reversed. It now has a market value of $3.6 billion.
Many quickly began wondering why GameStop didn’t cash in on a seemingly once-in-a-lifetime opportunity to make an example of corrupt Wall Street. Three people familiar with the matter told Yahoo! Finance that GameStop decided regulatory restrictions barred it from selling its stock. This was primarily due to the company not yet updating investors on its earnings, the sources said.
When planning to sell stocks, The SEC requires companies to release earnings information beforehand. GameStop’s fiscal fourth quarter ended in January, which meant several more weeks would go by before earnings would be reported. Sources say GameStop executives had already put data together to paint a picture of what the quarter would look like, by the time the stock price began skyrocketing.
What could have been
Ultimately, GameStop appeared to fall under heavy pressure from the rules of Wall Street. While the company could have moved forward with a stock sale via preliminary earning reports, the logistical hurdles and regulatory risks were too much to accept. The SEC is known for heavily scrutinizing companies that take advantage of trading volatility in the stock market. GameStop’s stock price would have been its top priority.
Other companies who experienced a leg up from Reddit in their stock prices had financial quarters that finished in December, and had already updated investors on earnings. Those companies were able to take full advantage of the rallies and sell their stock at the end of January.
Do you think GameStop made the right decision not to sell their stock? Let us know in the comments!