Words from Robinhood Snacks:
GameStop's insane stock surge, and the rise of "cyberbulling"
GameStop stock pop... Hard to say 5X fast, but even harder to explain. ICYMI: GameStop stock has been on a tear (yes, the same GameStop that you visited at the mall 15 years ago). Shares have surged over 1,000% since December, and nearly doubled in value just yesterday. And it's probably not driven by the fundamentals — aka: financial info like sales growth that you see in earnings.
The glory days: From August 2009 to October 2010, GameStop pulled in nearly ~$6B in sales and $170M in profit.
The present days: From August 2019 to October 2020, GameStop saw less than $3B in sales and lost nearly $300M.
The TLDR: A money-losing video game company with 5K physical stores is surging... during a deadly pandemic when we're downloading games online.
Why... The momentum started around the time that former Chewy CEO Ryan Cohen (and two of his Chewy pals) announced they were joining GameStop's board. Their ecommerce expertise could help make GameStop less mall-retailer, more digital shop. But the surge goes way beyond that...
"Cyberbulling": Being “bullish” on a stock = thinking it'll go up. Some "cyberbulls" on Reddit sparked massive GameStop buying campaigns. That drove up the price of shares, as well as call options — which give buyers the right to purchase stock at a set price up until a certain date.
Short squeezing: "Short" sellers, people who borrow stock betting it'll fall, started buying GameStop shares back sooner to reduce more losses as the stock soared.
Hedging: Institutional investors also started nabbing shares to hedge against the call options people were buying.
THE TAKEAWAY
Cyberbulling is based on momentum... And while all investing carries risk, investments driven by cyberbulling can be dangerous. People riding the community-driven momentum could make significant gains, but as soon as the surge ends their investments could plunge very quickly. And unless the companies being "cyberbulled" eventually show strong fundamentals, it's likely that their shares will fall back down to earth.
