GameStop, a dying video game retailer, has risen to all-time highs in the stock market. How did it happen?
A few weeks ago, the company (stock trading as ticker: GME) traded around lows of ~$19. As of January 27th, 2021, the GameStop stock has reached an all-time high of $350. That’s a ~1700% increase! Currently, GameStop’s market capitalization is $24 billion, previously $500-$700 million.
Before its meteoric rise, GameStop was on a slow decline into bankruptcy.
Before its meteoric rise, GameStop was on a slow decline into bankruptcy as it faced significant challenges to its business model from the internet similar to BlockBuster. People stopped buying video games in-person at retail stores. “Downloads became a thing, and GameStop’s business declined,” says Michael Pachter to BusinessInsider, who covers the video game industry.
Alongside GameStop’s faltering business model, GameStop also ran into issues with its poor business decisions. They embarked on new initiatives, including the acquisition of Spring Mobile in 2013. The company had bet on making money by buying smartphone stores. By 2016, GameStop had owned and operated approximately 1,500 mobile-phone stores under the Spring Mobile name, and in 2018, had sold the whole mobile-phone business.
So how did GameStop rise from the ashes?
Stock trading euphoria caused by …
An army of traders from the Reddit r/WallStreetBets has been at the center of the GameStop saga. WallStreetBets (WSB), a community of millennial and Gen Z traders, have helped drive a to-the-moon surge of GameStock’s stock price while halting trading multiple times, crashing Reddit, and even forcing the subreddit to go private. With 3.5 million traders following the subreddit, WSB users are known for purchasing extremely risky products, including leveraged ETFs, financial call and put options, as well as shorting equities.
No one expected a group of online traders...
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