Regardless, this posed a severe risk to GameStop’s business model. The change in consumer tastes can be attributed to a variety of factors ranging from convenience to the expansion of high-speed internet. In 2018, digital game sales increased to 83% of total sales. ![]() However, GameStop faced struggles in recent years due to consumers’ increased taste for digital distribution.Īccording to Statista, physical game sales accounted for 80% of total sales in 2009. For years, GameStop allowed gamers to trade-in games they no longer played for small amounts of cash or in-store credit. GameStop is an American chain of brick-and-mortar video game stores. The story begins with the corporation GameStop. The GameStop short squeeze is a story with multiple characters: a hedge fund CEO, an investor app, a corporation potentially on its deathbed and retail investors. In the winter of 2020, however, retail investors began buying up the company’s stock.Īs we enter the second stage of GameStop’s Wall Street drama, we may forget the truly ridiculous ride that led us here. “By having this volatility it makes it a lot harder for the executives there to actually make good decisions,” said Au.A subreddit called r/wallstreetbets had talked about GameStop’s stock in past years. GameStop Corp.’s stock was incredibly volatile, even in the last twenty-four hours alone, opening at $265 USD, hitting a high of $483 USD, a low of $112.25 USD, then finally closing at $193.6 USD. The company itself may not benefit from all of this, either. ![]() GameStop’s surge in stock price may benefit the early adopters leading the r/wallstreetbets subreddit who can cash out big, says Au, but less so for people only just jumping on the bandwagon. “All this seems to be doing is transferring wealth from one group to another.” “Depending on your point of view maybe it’s David and Goliath fighting the evil hedge fund managers, or maybe it’s a handful of people on the web trying to make money off of regular innocent people,” said Shiu-Yik Au, assistant professor of finance at the University of Manitoba. stocks along with other companies targeted by the r/wallstreetbets community, such as Blackberry or the movie theatre chain AMC.īut while some see this as a story of the little guy taking on Wall Street, the reality may be less ideal. Online brokerage sites, like Robinhood, have responded by limiting trading on their platform in GameStop Corp. “I think that’s the power of technology, the accessibility and ability for the retail investor or consumer who can go and access products that are usually reserved for larger institutions,” said Andrew Chau, CEO of NeoFinancial, a Canadian financial technology company. Many of the investing Redditors, known as “retail investors,” are using online brokerage sites to facilitate trading. Still, the strategy seemingly worked and some short-selling hedge funds have lost billions already. Tétrault also warns that GameStop’s stock value could hit unforeseen highs because it is not being traded on a “rational basis” and advises against purchasing shares at this time. “They must put up more capital and more capital,” said Tétrault, explaining what happens to the short sellers when the stock price goes up instead of down. That is what some Wall Street hedge fund managers were doing with GameStop Corp.Ī community on Reddit, using the thread “r/wallstreetbets,” caught wind of what the short sellers were doing and decided to put the squeeze on them by buying up GameStop Corp. You return the stock to the broker you got it from and pocket some money off the difference. The hope is the price falls and one can buy back the stock at a lower price. “They’re trying to squeeze the short sellers and force them to pay more and more money each and every day,” he said.Ī “short” is when you borrow a stock from a stockbroker and sell it off right away. “We've never seen a short squeeze of this magnitude in the history of investing,” said Rob Tétrault, senior vice president, portfolio manager and head of Tetrault Wealth Advisory Group, based in Winnipeg. ![]() video game retailer GameStop.Ī fixture of suburban shopping malls for years, GameStop Corp.’s stock price – at $20 USD in early January – surged hundreds of dollars higher in recent weeks, sending shockwaves through financial markets. A band of investors on social media are driving up the price of U.S.
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