GameStop Stock Plummets But ‘Reddit Rebellion’ Sparking War On Big Money Investors

Video game retailer GameStop is still struggling to stay afloat despite a Reddit-driven stock surge that drove the companies shares up 400% last week, and the store chain anticipates millions of dollars in losses when its first-quarter earnings report emerges, but financial analysts now say the GameStop “short squeeze” set the stage for much larger battles.

“The short squeeze last week that propelled GameStop (GME) and other momentum investments popular with the Reddit crowd now appears to be on hold. GameStop plunged nearly 50% Tuesday while AMC (AMC), silver prices, and silver mining companies also fell sharply,” CNN reported Tuesday. ‘That’s partly due to trading restrictions from Robinhood and other brokers on how many shares of volatile stocks like GameStop, AMC (AMC), Express (EXPR), and Nokia (NOK) that retail investors can purchase in a single stock at a time.”

“The momentum against GameStop picked up early Tuesday, with shares trading down more than 50% after a big drop Monday,” the Wall Street Journal added. “Other once-hot stocks–AMC, Koss, Express– fell alongside the day-trader favorite, while silver also took a leg down, dropping after the CME slapped additional margin requirements on traders.”

But big-money investors, initially thought to be only on one side of the GameStop stock surge — the losing side — are now weighing in on both sides of the divide, urging a new crop of amateur investors to hold the line, largely in an effort to disrupt what they believe to be a troubling Wall Street trend.

CNN notes that mega-investor “Mark Cuban urged members of Reddit’s WallStreetBets community to stay the course with stocks like GameStop.”

“I have no doubt that there are funds and big players that have shorted this stock again thinking they are smarter than everyone on WSB,” Cuban said during a Reddit AMA (Ask Me Anything) this week. “I know you are going to hate to hear this, but the lower it goes, the more powerful WSB can be stepping up to buy the stock again.”

The idea being that younger — and in many cases, amateur — investors can reverse a dire Wall Street projection.

The Washington Post notes Tuesday that GameStop was warned in July of 2019 that it had the power to overcome Wall Street’s decision to bet against its survival but its board chose to listen to the experts.

“Investors had pretty much given up on GameStop when [“The Big Short” architect Michael Burry], who had made his name battling Wall Street’s biggest names, identified overlooked value in the video game retailer. Failed acquisitions, lackluster management, and customers’ preference for downloading new games rather than buying them in stores had shaved nearly 70 percent from the share price,” the Post noted. “But with GameStop trading near its all-time lows, and sitting on roughly $480 million in cash, the board could easily buy back most of the outstanding shares. That could triple the financial payoff for shareholders, including Burry, whose investment firm owned 2 million shares.”

“The standpat board ignored Burry. But his letter was the first public indication that the smart guys on Wall Street were missing something about GameStop,” the outlet said.

Another investor, who saw similar potential, was one of the financial advisors who ended up marshaling r/WallStreetBets’ resources and coordinating the “short squeeze” that left Wall Street’s short-sellers reeling. And the damage continues: the WSJ reports that short-selling positions on the targeted companies are “declining rapidly.”

GameStop is not likely to survive the surge, even though its stock price is now substantially higher than it was in September when it recorded its low price, $10, but the battle over who controls Wall Street may be just beginning.

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