What is the GameStop and GME phenomenon? How did the meme stock craze develop?

In January 2021, video game retailer GameStop (GME) became the center of an unprecedented stock market phenomenon when GME stock price soared due to a massive selling pressure triggered by retail traders on Reddit’s r/WallStreetBets forum.

Here’s what you need to know about GameStop and the GME series.

What is GameStop?

GameStop is an American retailer of video games, consumer electronics, and gaming merchandise. Founded in 1984 as Babbage’s in Dallas, Texas, GameStop has grown to become a major player in the retail gaming market. There are thousands of physical stores around the world where gamers can buy, sell, and trade video games and consoles.

But in recent years, GameStop has faced serious challenges due to the digitization of games and increased competition from online retailers. Due to declining sales and store closures exacerbated by the COVID-19 pandemic and lockdowns in 2020, GME has become a target of short sellers investing in the company’s stock.

r/WallStreetBets and the GME phenomenon

In late 2020 and early 2021, GameStop became the center of a massive group buying effort launched by retail investors on the Reddit forum r/WallStreetBets, including Keith Gill, also known as Roaring Kitty.

These investors aimed to drive the stock price higher by triggering a short squeeze (a situation where short sellers are forced to buy shares to cover their positions).

By January 2021, the movement had gained significant momentum. GameStop’s stock price, which was around $17 at the start of the year, soared to an all-time high of $483 on January 28, 2021, thanks to a combination of retail investor enthusiasm, social media influence, and hedge funds’ financial pressure. That heavily shorted the stock.

aftermath

While the GME surge resulted in massive gains for some individual investors, it also resulted in significant losses for a certain hedge fund group. This has prompted trading restrictions on platforms like Robinhood, sparking debate over market fairness and regulatory oversight.

The meme stock craze became a pop culture moment and made traders like Roaring Kitty famous. There was also a 2023 feature film ‘Dumb Money’ based on their exploits.

The GME phenomenon has had several lasting effects. Many new entrants have entered the stock market due to the meme stock phenomenon. This was especially true for younger investors using mobile apps like Robinhood. Regulators and lawmakers have stepped up scrutiny of meme stocks and short-selling practices. And GameStop itself has leveraged the newfound attention and influx of capital to shift its focus to e-commerce and digital ventures, including: NFT-The results are mixed.

The future of GameStop

Following the r/WallStreetBets short squeeze, GameStop has launched a bid to expand into NFT collectibles via digital asset marketplaces and Ethereum wallets. The strategy comes as the broader NFT market is losing momentum, with CEO Matt Furlong saying in December 2021 that the company would focus less on NFT and cryptocurrency-related efforts due to layoffs of its cryptocurrency team.

Furlong was ousted as CEO in June 2023, and Chewy co-founder Ryan Cohen took over as chairman. Under Cohen’s leadership, the company embarked on a strategic transformation. The goal is to transform GameStop into a technology-focused company that will focus on e-commerce and leverage its existing customer base.

In May 2024, interest in GameStop as a “meme stock” was briefly revived when r/WallStreetBets’ lead Roaring Kitty appeared to return after a long absence from social media.

Although the financial influencer did not mention GameStop directly, his apparent comeback was enough to spark a rebound in stocks and cryptocurrency assets linked to his past exploits, including GameStop.

But the second wave of meme stock mania was short-lived, even though some lucky traders created bank-traded GME options.