GameStop shares drop 60 per cent as frenzied rally loses steam

GameStop shares fell to 60 per cent on Tuesday in New York in a further reversal of the recent blockbuster gains that grabbed attention far beyond Wall Street.

The video game retailer’s stock shot up an eye-popping 1600 per cent in January following a social-media led campaign to boost the price at the expense of big Wall Street funds who were betting on a decline. The dramatic increase, with little connection to investing fundamentals, spurred warnings that things could turn around just as quickly.

The 60 per cent fall comes after a 31 per cent decline on Monday.
The 60 per cent fall comes after a 31 per cent decline on Monday. Credit:AP

GameStop shares fell $US135 to $US90. The 60 per cent drop was the worst ever for the stock and follows a 31 per cent decline a day earlier. The stock had risen as high as $US483 last Thursday, far above the $US17 it fetched at the beginning of the year. The sudden swoon this week could dash some investors’ hopes of cashing in big.

“These things can last longer than people expect, but when they unwind, they can unwind pretty fast,” said Ross Mayfield, investment strategist at Baird. “When it’s complete speculation mania and gambling, someone is going to be left holding the bag.”


The extreme moves in GameStop have been driven by a frenzy of speculative trading and appear to have little to do with the actual prospects of the company, which has been losing money consistently.

The business model of the mall-based retailer of physical copies of video games has taken a beating as fewer people go out shopping in malls and as more people download video games instead of buying them in stores. That led some big financial institutions to “short” the stock, or bet on the price to fall.

Investors on Reddit and other social media portals have banded together in recent weeks to snap up shares of GameStop, AMC and other struggling chains. Some of the institutions that thought the stocks would decline have now admitted defeat and walked away from those bets in a stunning reversal of financial power on Wall Street.

The number of GameStop shares that have been shorted (bets that the stock will fall), were slashed by more than half in recent days, according to a report Monday by the analytics firm S3 Partners.

As GameStop’s shares plunged Tuesday, its followers on Reddit got some encouragement from Mark Cuban, the entrepreneur and owner of the Dallas Mavericks.

“No disruption is easy or happens in a straight line,” Cuban said in an “Ask Me Anything” discussion on Reddit’s WallStreetBets. “Stay with it. I am a believer.”

He said he does not own any GameStop shares, but said what smaller traders are doing to its stock is the same thing that professional investors have long done to each other on Wall Street.

But now, instead of one hedge-fund manager trying to squeeze another who had built up big bets that a stock’s price would fall, it’s smaller investors communicating over the internet doing the targeting.

“What i love about this now, is that if you pick your spots right and work as a group, you can hit again and again,” he said in the forum.

Beside GameStop, shares of favourites of the online crowd fell as well. AMC Entertainment fell 41 per cent, headphone maker Koss Corp. slid 43 per cent and BlackBerry dropped 21 per cent. The S&P 500 index, meanwhile, closed up 1.4 per cent.

The retail frenzy in silver has left some dealers scrambling for bars and coins to meet demand.


Market Recap

A concise wrap of the day on the markets, breaking business news and expert opinion delivered to your inbox each afternoon. Sign up here.

Most Viewed in Business

Source: Thanks