The past year for GameStop has been pretty rough, even without taking into account the fact that both Microsoft and Sony are now selling versions of their game consoles without disc drives (effectively cutting GameStop and its physical stores full of physical games out of the equation). In March, the company argued that it was an “essential” business and therefore needed to say open despite government-mandated coronavirus shutdowns, and then in November the company was criticized for asking employees to film “fun” TikTok dance videos in order to try and win the privilege of getting paid for extra work hours. Over the weekend, though, it looked like the troubled company’s fortunes had started to inexplicably turn when GameStop’s stock price skyrocketed by hundreds of percentage points—as explained in this Vox story, it was 400 percent higher at one point than it was at the beginning of the year.
However, this doesn’t necessarily have anything to do with GameStop’s future viability as a company. In fact, it all seems to be part of an elaborate attempt by Reddit’s r/WallStreetBets community to screw over firms that were trying to “short” GameStop’s stock, thereby (potentially) squeezing some money for themselves out of the pockets of greedy investors. Confused yet? Did you not see 2015's least funny critically acclaimed comedy movie?
Let’s back up: Here’s what a “short” is, as we—a pop culture website—understand it: An investor, believing that a specific stock is going to tank soon, borrows shares of that stock and sells them at a (presumably) low price. The price then, in theory, gets lower, at which point the investor rebuys the shares at a lower price, gives them back to the original owner, and pockets the difference. So if you borrow a stock and sell it for $20, then buy it back when it dips to $15, you get to keep the extra $5 when you return the borrowed stock. Essentially, it’s all about betting that something will fail, as opposed to regular investing (“long” instead of “short”), which is about hoping that something will succeed. In The Big Short they did it with the real estate market just before the whole economy fell apart for a while, getting richer and richer while regular people suffered.
So shorting isn’t especially “cool,” because it largely depends on being a dick, which is perhaps why the aforementioned Redditors decided to put a little scheme in motion when it became clear that investment funds were planning to short the GameStop stock. One group in particular, Citron Research (led by who Vox describes as a “famed short seller”), suggested last week that people buying GameStop shares were “suckers” because the price was going to stay low for easy shorting—or something along those lines (this is all complicated). With people betting against GameStop, and with GameStop being sort of a meme-y company with ties to the Reddit-friendly video game community, the Redditors essentially banded together and bought up GameStop stock en masse, driving the stock price up and effectively forcing the stock to “win” when the shorters had bet on it to “lose.”
That means shorters, who are just borrowing the stock, will have to buy it back eventually at whatever price it ends up landing at, and if it’s more than what they paid, they have to pay the difference rather than pocketing it. So if, say, the shorters sold the stock for $20 when it was low but have to buy it back when Reddit has made it jump to $500, they have to pay the extra $480. And the Reddit plan seems to be working, since GameStop stock keeps shooting up, and The Wall Street Journal says a hedge fund called Melvin Capital Management that had shorted GameStop is down 15 percent from the beginning of the year at least partially because of this. Regular people are using rich investors’ greed against them, and though it might not be tenable (Redditors suspect that Wall Street “institutions” are conspiring against them), it seems pretty damn cool.
But what does this all mean for GameStop the company? Possibly nothing. Some people are buying GameStop shares because they actually have confidence in the behind-the-scenes moves it’s making to try and transform into something that’s actually relevant in 2021, but that’s not why the Redditors are buying it and it’s probably not why the price has jumped so much. It doesn’t seem like this is bad for GameStop, so that alone is a win for the company, and it’s certainly getting a lot of free press out of this that sounds good. Plus, now a bunch of people on Reddit own shares in GameStop, which is… definitely something.