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article imageOp-Ed: Reddit screws Wall Street and proves its ignorance, but…?

By Paul Wallis     Jan 27, 2021 in Business
New York City - In what will surely become a movie, some sub-Redditors have made Wall Street look incredibly dumb. Talking up a stock called GameStop has made the sub-Redditors very rich, and they don’t mind a bit.
There’s a bit of a saga here. GameStop is a bricks-and-mortar business, selling games in shopping malls. Dinosaurs and pre-Cambrian plankton may remember shopping malls; places where people used to go before the Big Retail Meltdown and the pandemic.
IS GameStop for real?
To be strictly fair about this:
GameStop really is a legitimate business, not a hype with a shopfront.
• It has all the latest games, VR, etc., and offers discounts.
• You can rent, buy, or use trade credits and their rewards system.
• It covers all platforms like Xbox, PlayStation, etc.
• It trades in collectibles and in general looks like a good, bona fide games business.
• GameStop does sell online, so the “bricks and mortar” objection to their sudden success doesn’t quite hold up.
• Oh, yeah… and the revenue for 2019 was $6.466 billion – Not bad for a Mom and Pop store.
To be even more strictly fair, this business quite specifically does NOT look like some massively hyped pseudo-business generated out of thin air. There’s a search engine to find your nearest GameStop, and I found about 40 in New York alone. This is a working business, and it does look 100% OK as a working business. It takes ages to build up a portfolio of stores like that, too, so some hard work has probably gone into its current structure.
Ah, um, but…?
Nice change as it is to know that this business actually exists, it does not give the impression of being some sort of new Amazon. It just looks like a competently managed franchise, a bit on the larger size, a bit but not unusual in the games sector.
In the last month, however, it’s gone up 134% on the NYSE (NYSE:GME)and this is supposedly due to the sub-Reddit. This is up from almost totally flatlining for the last year. The price has gone up from $4.22 on 15 May 2020 to $347.51 on the 27th of January 2021.
The saga deepens. Wall Street, in its senile wisdom, is now calling the price “systematically wrong”, whatever that’s supposed to mean. Less amusing, by far, is the fact that the market is now “shorting” GameStop heavily. “Shorting” means contracting to buy at a lower price in future.
So the vultures are gathering, and thickly, around GameStop. This ISN’T good for the company. A big crash could do a lot of damage to the company’s market image.
Does Wall Street know gaming? Maybe not.
Anyone who knows squat about the gaming industry knows what gaming stores are like. The finance sector has ignored this gigantic industry for a very long time. Sure they know what Xbox and PlayStation are, but they’re tacked on to major players like Microsoft and SONY.
It’s looking a lot like the doubts about Facebook and Twitter when they went public with a stock offering. These are not conventional businesses, and they don’t behave in the same way on the market.
The sub-Reddit hype, however, has blurred the image. How good a buy is GameStop? Will anyone ever know? Whether it’s a “mob-driven” stock spike or not, the real value of GameStop is now anyone’s guess.
A hedge fund said it lost money on a GameStop position. That can’t have been easy to do, given the almost vertical rise in the stock price. The shorting is also standard procedure for a risky investment to recoup money, so that’s not entirely unusual, just very sudden and pretty extreme.
The valuation of the stock needs to be clarified, preferably ASAP. GameStop could do itself a big favour, and get in the market’s good graces by issuing a statement. A reputation as a hype market product can’t do the company much good.
Meanwhile – Who's calling the shots on Wall Street? Reddit? If so, why? That’s another question that needs answering. If hedge funds don’t complain until they’re losing money, how much of this outrage is real?
Postscript: I've found out how they lost on GameStop; they shorted too early. Ha, ha, cackle.... guffaw... chuckle..
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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