Everything you need to know about Gamestop

USC reacts to the David and Goliath “stonk” war.

Gamestop stock has "shot to the moon."

Gamestop. Robinhood. Reddit. Stonks.

From Wall Street elites to college students, suddenly every conversation has pivoted around these words.

In recent months, the stock price of Gamestop (NYSE: GME) has shot “to the moon,” to use the hackneyed phrase from Reddit’s WallStreetBets — a forum that has grown to over 7 million spirited, meme-crazed retail investors.

Nuanced financial analyses can be found juxtaposed with intentional misspellings (i.e. stonks) and self deprecation, all wrapped up in a camaraderie that has gone viral. In a display of decentralized unity, Redditors artificially pumped up the stock prices of Gamestop, AMC Entertainment (NYSE: AMC) and Blackberry (NYSE: BB).

The reason? Gamestop had become the target of historically massive short selling. In other words: professional investors and institutional investors bet big on the company’s failure.

Shorting a stock is done by borrowing a stock and then selling it, then buying it back later at a lower price. Then, the stock is returned to the original borrower (a lender or broker) and the short-seller pockets the difference.

“The Gamestop saga, regardless of outcome, is a sign of a new type of shareholder activism,” said USC Annenberg’s Gabriel Kahn, professor of journalism and business reporter. “In the long run this could really help empower the little guy against Wall Street greed. The foundations have been laid to mobilize retail investors.”

Gamestop has struggled to maintain relevance as digital video game downloads have become more common. The pandemic only added to their business worries, as it did to many brick-and-mortar shops that depend on in-person shopping.

Several hedge funds shorted Gamestop to such a large degree that some astute retail investors online took exception. Led by trader Keith Gill, known by his Reddit username u/DeepF—Value (who, as of last week, reportedly made tens of millions from these “casino” stocks), forum users came together in an attempt to save Gamestop, take down Wall Street, and make a quick buck.

In October, a share of Gamestop could be bought for less than 10 bucks, and hedge fund investors anticipated it falling further. Yet, by the end of January, thanks to plucky, devil-may-care retail investors as well as celebrity figures such as Elon Musk, Rep. Alexandria Ocasio-Cortez and Mark Cuban, Gamestop had skyrocketed to nearly $500 per share, nearly 200 times the stock’s one-year low.

With the dramatic stock price increase, several premier Wall Street hedge funds lost billions in January covering their short positions, as reported by the Wall Street Journal and Markets Insider. Short-sellers lost upwards of $19 billion as of Friday. These losses further inspired eager Reddit investors, with users calling on others to continue buying and holding stock.

Naturally, some young investors remain unconvinced. “I didn’t invest nor would I because the stock is overvalued without basis, because it’s basis is Reddit,” said recent USC alumna and lawyer Ashley Reddy. “But I do think the whole incident is funny.”

Nonetheless, and perhaps more importantly than monetary gains, retail investors have rallied around the opportunity to “stick it to the man,” using the power of the internet to take on Goliath. Investment fundamentals of Wall Street have been pitted against a new generation of traders armed with internet savvy, gusto and Robinhood, a commission-free trading app.

Last Thursday, however, Robinhood and other popular trading platforms placed trading restrictions on the handful of shorted stocks. Retail traders could not buy more shares and share prices plummeted.

Redditors cried foul; now, Robinhood faces class-action lawsuits.

In a blog post explaining their actions, Robinhood stated that they faced ten-fold increases in deposits that they had to make with their clearinghouse, and thus had to halt trading.

“It was not because we wanted to stop people from buying these stocks,” the statement read.

Many remain unconvinced. “Originally I didn’t buy any stock, but once Robinhood restricted trading last week, I thought this was getting out of hand,” said USC student Thomas Chow, a sophomore studying communications. Chow has followed the WallStreetBets Reddit page since before the Gamestop phenomenon.

“It seemed shady that the app seemed to be trying to save the hedge funds,” said Chow. “I had some spare money to spend so I thought I might as well ‘join the battle’ and be part of the story.”

Chow, like innumerable posts on Reddit, made reference to “fighting the good fight,” hinting at how the once-cult following on WallStreetBets has burgeoned into a widespread phenomenon. The average Joe investors had garnered momentum.

“I’m going to just keep holding the stocks,” said Chow. “I’m not going to betray the whole WallStreetBets community.”

Today, the “stonks” — GME, AMC, BB — saw precipitous declines. Gamestop fell by 60%, landing at $90.00, which leaves some gains for those who bought cheap shares weeks and months prior but severe losses to those who bought at higher prices.

“Gamestop as a company really is a husk of what it once was,” said Kahn. “There’s very little intrinsic value in the company, so eventually gravity will prevail and share prices will have to fall.”

Whether or not the recent volatility Reddit stocks will leave lasting implications remains to be seen. Wall Street must adapt to the new flux of online traders who buy and sell by committee and leverage memes that spread like wildfire.

Gamestop may be only the beginning.

“The whole thing’s been a lot of fun to watch,” said Kahn. “It strung out the hedge funds who shorted these companies, and I found myself rooting for the little guy.”