Yesterday morning, something unexpected happened. Of all the stocks in the world to draw everyone's attention, GameStop was the standout winner of the day. Or so it seemed. The video game retailer's reached an all-time high as a frenzy drove its long-dormant stock through the roof Monday morning.
The problem was that GameStop hadn't done anything to warrant the sudden increase in value. In fact, the company has been fizzling for some time now. Its own projections have it not turning an annual profit until 2023. So why the sudden increase? As it turns out, the rally was driven almost entirely by a community on Reddit called r/wallstreetbets, where users make memes and share investment ideas. Though trading was eventually halted due to volatility, the dramatic spike left many anxious about the ability of such communities to influence the stock market, and wondering whether or not this could happen again.
Why was $GME up so high?
GameStop’s weekly page views per million users spiked over the last several months, peaking at a 409% increase compared to January 2020. Today, it’s sitting at a 118% increase. These are impressive numbers for a company that was otherwise widely seen as in the midst of a long, slow decline.
But let’s be clear: GameStop is not doing well. The increase in page views was almost certainly driven by the release of the new Playstation 5 and Xbox Series X coinciding with the holiday shopping season — and not just by their release, but by their scarcity. Even now, months later, it’s still hard to get your hands on one of the new consoles.
By most metrics, GameStop is not a company most people should invest in. For years now the company has been in a death spiral brought on by a shift in the way consumers purchase and play video games. Just like the advent and growth of streaming services has caused many to lament the end of the DVD, the rise of digital storefronts has led to a decline in the purchasing of physical game copies.
GameStop has felt the burn. Even the new generation of consoles are now launching with digital-only versions. Microsoft has shifted to make Xbox Game Pass, a subscription service that gives users access to a vast downloadable library of new and classic games, a flagship part of its video game operation. A disc-less (or cartridge-less, if you’re Nintendo) future is closer than it has ever been. GameStop permanently closed 300 stores in 2019 and another 320 last year.
So, no, GameStop did not make any big announcement or big change that would cause its stock to spike or rapidly climb the way it did today and in the past week. The rally was driven almost entirely by a community on Reddit called r/wallstreetbets.
What is r/WallStreetBets?
R/wallstreetbets is a subreddit where users, mostly laymen without professional trading experience, talk about the stock market and exchange ideas on what to buy and sell. The community grew during the pandemic to become one of the most popular on the platform, boasting 2.2 million subscribers — or “Degenerates,” as they call themselves.
That r/wallstreetbets adopted the title of “degenerates'' is as good a description of what goes on there as you could get. These people are, in the truest sense, betting. Not investing. The line between meme and actual purchasing recommendation is nonexistent, especially as the stock market becomes increasingly detached from the reality of American life. One of the most seminal moments in the subreddit's history is “WSB Yolo,” a video of a man recording himself betting against Apple stock in his car, and almost immediately losing $50,000 as the markets open.
This isn’t the first time this has happened — r/wallstreetbets also had a hand in Bitcoin’s new-year rally earlier this month as well as several rallies in Hertz stock, a bankrupt car rental company. Many of these users trade via apps like Robinhood, which have the capacity on their own to cause random frenzies. In August 2020, Robinhood removed a feature which allowed users to see popular stocks on the app, which led 40,000 users to purchase Tesla stock within a four-hour period. Reddit in general has a long, unhappy history of communities based around investment. The site was home to some of the earliest crypto trading communities, and a dig through old threads will surface any number of sad stories about ruined lives written in real-time.
The massive rally in $GME was driven almost entirely by r/wallstreetbets — at least initially — for any number of reasons. Whether it was humor or misguided investment or whatever else isn’t really that important — on the other end of it, WSB users are celebrating their accomplishment of causing $GME to peak at an all-time high of $144.59 and all the consequences of it.
Because it’s funny. It really is that simple. Many of Reddit’s most popular communities are based around video games, and GameStop is a particularly infamous company for many gamers. The store has a returns policy that allows customers to return games to build in-store credit that can be used to purchase other games. The policy is regularly the subject of memes based around how stingy GameStop is, as it takes multiple returns to build up enough credit to buy a new $60 game, and the returned games are often put back up on shelves at prices several times higher than the credit customers received.
Pumping up GameStop’s stock, then, is a way to publicly laugh at the slow decline of a company that many customers view as having ripped them off from their adolescence all the way to adulthood.
But while the spike may have started as a meme, it’s been viewed the other end by WSB as a middle finger to the “elite.” Even though trading was halted due to volatility, WSB users are celebrating what they’ve done — particularly as it hurt the rich. “All that fed liquidity from 2008-2010 really is paying interest to the american people now,” one user wrote. “Everyone's just pissed about who's pockets it's going into.”
Many of the people who downloaded Robinhood or Acorns during the pandemic did so as the nation was hemorrhaging jobs and income streams were cut off. But even as they lost their livelihoods, the stock market kept climbing upwards, piercing the heavens and unfazed by the droves of unemployed Americans. To many of these people, riding the wave was their way out of a terrible situation; maybe with a few well-placed investments, they could make it big in their time of need. How hard could it be?
Online communities of amateur investors have the ability and will continue to move the needle on stocks. If big, public shifts like this continue to happen, there may be a crackdown on communities like r/wallstreetbets for market manipulation. The subreddit itself has a rule against it and threads recapping the $GME saga begin with the line “no market manipulation,” which is a little like putting a bandaid on a leak in the Titanic. The community is only moderated by 10 people, and they’re standing up against 2.2 million “degenerates” who are angry and have their finger hovering over the “buy” button.
About the Data:
Thinknum tracks companies using the information they post online, jobs, social and web traffic, product sales, and app ratings, and creates data sets that measure factors like hiring, revenue, and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.