GameStop’s Stock Soared to an Unbelievable Level because of Reddit Revolt

January 28, 2021

A collective of individual traders on Reddit’s (an online chat community full of gamers) r/WallStreetBets community sent GameStop Corp. stock to enormous heights over the past week in an experiment to stick it to the hedge funds, which had sold the stock short.  The company was trading at $17 at the starting of 2021. By Wednesday, it was over $340, valuing the unprofitable company at more than $25 billion.

The company’s surging stock may seem like a piece of good news for the gamers. But unlike Toys R Us Inc., GameStop was never very popular among video gamers. The Reddit community choosing the company as the stock to pump might be one big practical joke.

Gamers have a list of complaints about the company and how they treat their staff to controversial and pushy sales tactics.

Over the years, many gamers reluctantly shopped at GameStop only because they had a minimal choice. They made it easy to trade in old games for money or be used toward other purchases, which cash-strapped fans could appreciate. But the values became a punchline. A brand new game, which costs around $60, might fetch about $30 at this store.

The company also became known for its questionable practices, such as selling open copies of games as if they were new. Sometimes, customers would take home a brand new game only to find out that someone else’s saved file was on the cartridge.

GameStop made headlines in 2017 for its controversial Circle of Life program, which punished its staff for selling new games instead of pre-owned games. As a result, some employees said they would lie to customers about whether they had new stock copies.

Video game publishers have little to no love for GameStop. It led companies like Electronic Arts Inc. to pioneer strategies to get people to buy new copies of the games.

Such widespread disrespect for GameStop from all corners of the gaming industry has probably helped fuel the frenzy behind the retailer on Reddit.

The retailer has struggled as many former customers switched to buying digital copies directly on their consoles. Due to the coronavirus pandemic, its sales fell 30% in the quarter that ended on October 31. The stock surge makes no sense.

The r/WallStreetBets campaign shows investors driving up the shares are motivated by a populist desire to take down hedge funds with significant short positions.

Andy Cortez, a host and producer for the video game YouTube channel Kinda Funny, said, “It’s like in movies when the bullies vote for the nerd to be prom queen just to prank her.”

“If this was just Google or something, no one would care that much,” said Allen, a r/WallStreetBets poster, in a phone interview. “But the fact that it’s GameStop, that we’re going to take on a hedge fund because they shorted GameStop, it’s funny. There are great memes to be made out of it.”

Allen said he now has over 1,000 shares in the retailer, which he bought a few months ago for less than $20. He said he sees this as an opportunity for GameStop to become a better corporation without Wall Street short-sellers’ pressure. “If this company is going to go out of business, they deserve to go out of business on their own terms,” Allen said.

Written By
Anshula Thakwani

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