What Happened with GameStop and AMC on the Stock Market: A Detailed Recap

What+Happened+with+GameStop+and+AMC+on+the+Stock+Market%3A+A+Detailed+Recap

The pandemic has been rough for a lot of people, especially brick and mortar companies. Many businesses have had to close down – in fact, numbers have reached almost 100,000 businesses that have closed.  However, massive companies, like Amazon (AMZN), Target (TGT), and Walmart (WMT), have gained wealth throughout the lockdown.

Enter AMC (AMC) and GameStop (GME). Let’s just say that the recent years haven’t been the nicest to them. For those who don’t know, GameStop is an electronics, gaming, and merchandising shop, and AMC is a movie theatre chain.

AMC had a reported 90.9% revenue drop in the third fiscal quarter of last year, even as its theatres were able to start opening up again with fewer guests – in other words, they lost 905.8 million dollars in just this quarter alone.

As for GameStop, they have been on the decline for years. It’s become easier for consumers to makes purchases online. Just a few clicks on a cell phone and whatever you purchased is at your house in a day or so. According to The Washington Post, Gamestop’s sales have fallen 10 of the last 11 fiscal quarters – dropping more than 30 percent per quarter, on average.”

Something interesting has been happening with GameStop and AMC.  Reddit, a social media platform, has “subreddits,” which are smaller discussion communities. A popular subreddit is known as “r/WallStreetBets,” or “WSB,” where all types of people discuss and joke about what’s going on with the economy and the stock market; they all communicate through posts, and comments. 

Members of “WSB” started to catch wind of the decline in companies like AMC and GameStop, and had quite the idea – to short the stock of these companies, creating a short squeeze.

What is that, you might ask? First, an investor borrows stock from the owner of a given stock, and that investor sells it immediately after. This raises the price of said stock. A while down the line, when the stock price falls back down, those investors buy the stock back and give it back to the person they first took that stock from. This is called shorting a stock, a great, yet risky, way to make money. A short squeeze can be the best possible ending for the investor or investors mentioned earlier—they buy cheap, sell high, and trade back low. 

So, the members of “WSB” began to coordinate this. With plenty of posts, they began to get enough people to purchase stock, skyrocketing the price. But, something crazy happened: the price did rise – it rose by a lot.

AMC went from $4.96 per stock to $19.90, in roughly a day. Not anything compared to GameStop. GameStop went from $43.03 on Thursday, January 21st, to $347.51 on Wednesday, January 27th. It went up roughly 800%. 

After a short period of time, both stocks went on the decline until reaching roughly the same price it was before the spike, which was just what “WSB” members wanted. They borrowed cheap, had the option to sell high, and, now, have the ability to buy the same stock not too far down the road for significantly less than what they sold it for, to trade back. 

How is this even possible? Regular people now have the option to start trading stock by using free apps, like Robinhood. So many people started to trade GameStopi and AMC stock using Robinhood. Robinhood ended up shutting down trades for GME, and AMC, because they simply couldn’t keep trading – they didn’t have the money, or resources.

It’s also important to note that although a popular narrative that took place throughout this whole fiasco was that the little guy was sticking it to the big guy, and although much of borrowing was done from hedge funds (big, billion dollar trading firms), it’s still speculated that certain hedge funds also did some of the trading, and, therefore, made some of the money.  

Now, who lost? Although anyone who bought or borrowed GME or AMC earlier on made tons of money, anyone who bought while the price was high lost a ton. Buying at nearly $350, only for the stock to hit $40 only a few weeks later is bad optics.

Heartbreaking stories have come out all over the news, including Alexander Kearns, who tragically took his own life after believing he had became $730,000 in debt.

As the prices began to drop, people on the “WSB” subreddit began to become suspicious as moderators in the ‘subreddit’ began deleting the posts of their own members, claiming they lost money.

So, what does this mean for the market in the future? Well, it could mean a whole slew of things – it could show that the little guy can take on the big guy, or it could mean that the big guy can manipulate the little guy. A Congressional hearing as held to uncover what exactly had happened and why it had happened.

With an extremely large amount of money lost and made on both sides, this whole saga appears to have settled down, as both GameStop’s and AMC’s stock prices have just about hit the low cost they were formerly at.