Video game retailer GameStop (GME) enjoyed a historic spike in its stock price thanks to Tesla CEO Elon Musk. The billionaire tweeted only one word with a link to a thread on Reddit, where people were sharing the massive growth of the video game store. Ever since that inducing tweet, GameStop stocks have been rising non-stop. This tweet showed that Musk was truly amazed at the store’s skyrocketing profits when he saw the discussion on Reddit’s thread.
The word Gamestonk is a rendition of the retail company’s name and a popular stock market meme, ‘stonks’. It is often referred to the situation where there is a massive increase or decrease in wealth.
GameStop Stocks Keep Rising After Elon Musk’s Tweet
Throughout 2020, GameStop stocks were below 5 USD but surged this year and closed 150 USD on Tuesday, 26th January. After Musk’s tweet, the stock price went as high as 243 USD during after-hour trading. It was finally settled at 209 USD and currently, it was standing at 147.98. The market share of this retail company rose by 92.7% this year, which is far more than it expected for the next three years.
The one-word tweet by Elon Musk has helped GME stock to grow, and haul more investors towards the video game shop. Musk has been fighting short battles in the market for years, even when COVID-19 forced the investors to face losses.
A Dramatic Come Back
The retailer was doing so bad last year that stakeholders urged it to conduct a strategic review, and share a credible plan for seizing opportunities in the flourishing gaming industry. GME is not a technology company and has been stumbling around the online-ecosystem. Stakeholders suggested that GameStop could let go of its traditional brick-and-mortar footprint and adopt a digital one. The retailer has laid off dozens of regional managers and closed hundreds of stores in the US.
Meanwhile, GameStop remained a hot topic on the stock market as it is the world’s largest retail destination for gamers. Day traders reportedly placed substantial bets against the success of the company. When Redditors started discussing the stock price, it created demand for the company which forced a market rally to save the retailer.
Reddit users were excited about GameStop’s stocks price, who encouraged and reassured each other that this stock was worth investing in. On top of that, the world richest person’s tweet justified the excitement for a wide range of investors. This phenomenon is often called memestock which means people assume that a certain stock has value.
Elon Musk Influenced Short Selling Strategy For GameStop Stocks
The master of short-battle was keenly watching the short-squeeze of GameStop. A short squeeze happens when investors bet on the fall of the company’s stock. These investors are called shorts who borrow stocks from other investors and sell it. Then they buy it back after the prices fall and sell it to the original owner.
The problem with this process is that if a stock begins to run upward, some short battlers let go of their short and buy high price shares to return to owner. This usually eliminates all the shorts and increases the stock. According to reports, GameStop is the most shorted stock in the market. More than 138% of its shares were sold short, which made it a key target for short-squeeze. Investors tend to join this squeeze in an attempt to recover from losses.
How Musk Is Related To The Price Surge?
This is not the first time Musk has driven a stock price of a company with a simple tweet. Earlier on Tuesday, he praised an e-commerce company called Etsy after buying apparel for his dog. Etsy’s stocks rose by 8% on the same day.
Two years ago, Musk allegedly lied about making Tesla a private company in a string of tweets. Musk reportedly paid $20 million USD to the The Securities and Exchange Commission (SEC) in fine after his tweets caused immense volatility in share price. The trading was halted for an hour. Last year, Musk tweeted that Tesla’s stock price was too high. Then suddenly shares dropped more than 10% before recovering throughout the week.
How Will It Affect The Business?
This shows how Musk can easily influence social media and move entire markets. It seems safe to say that Musk’s tweets work as a catalyst even for those companies which are not doing so good. It also exposes that stock market is increasingly becoming short-term which might be less friendly for long term investors. Otherwise, a ‘brick and mortar’ store is less likely to do good in an industry whose infrastructure has largely shifted online. An average gamer would simply buy and download the game online instead of going to the store.
The video game retail business is increasingly getting worse as e-commerce continues to overpower retailing. However, many struggling companies have seen stock surge with the help of same thing Musk and Reddit users (intentionally or unintentionally) did with GameStop stock. Few examples include BlackBerry (BB), AMC (AMC), Macy’s (M), and Bed Bath & Beyond (BBBY). Experts still have contradictory opinions on whether this stock surge can help the physical presence of the struggling company.