EXPLAINED | What Is GameStop? The Controversy Around Sudden Surge In Its Stock Price & Reddit's Role

Before creating a buzz across social media platforms in the past few days, 'GameStop' had been struggling amid the stiff market competition since 2016. Then what led to stocks of this failing outlet to a sudden soar?

Image: @GameStop/Twitter

On January 28, 2021, a short sqeeze in the trade market resulted in a 1,500 percent increase in an an otherwise struggling video game retailer’s share price over the course of two weeks, reaching an all-time intraday high of US$483.00 on the New York Stock Exchange. A major contribution to the effect is being attributed to a dedicated group of Redditor’s, followed by  Elon Musk's tweet "Gamestonk!". The sudden soar in the stock price of 'GameStop' has created a buzz with world in a tizzy around the entire fiasco.

Here we've unfolded the entire controversy, explaining the series of events in detail.

What is GameStop?

GameStop is an American video game, consumer electronics, and gaming merchandise retailer based out in Texas, United States. The firm specialises in the buying, selling and trading of games and game devices through as many as 5,509 retail stores under various brands including GameStop, EB Games, ThinkGeek, and Micromania-Zing throughout the United States, Canada, Australia, New Zealand, and Europe.

The change in market trends due to people slowly shifting to digital distribution model, followed by months of pandemic, forced many physical retailers pack up their bags and leave.

Before creating a stir across social media platforms in the past few days, the firm had been struggling amid the stiff market competition since 2016. The name became a part of everyday news for its allegedly absurd employee policies. The outlet was recently again under fire for keeping its shop open and flagging itself as ‘essential business’  during the COVID-19 pandemic.

Despite a row of controversies in the near past, the stocks of this failing outlet are now suddenly soaring.

How GameStop's stock price is suddenly soaring? Well, thanks to Reddit!

At the time when the stock of GameStop was sinking, a messiah on Reddit noticed a small group of investors - Hedge Fund - heavily short-selling the stock. At the same time, an alleged group of amateur day traders got involved convincing other people on the wallstreetbets thread to join forces and buy as much GameStop stock as possible. This triggered the entire firestorm in the trade market, making the share prices go up dramatically. In the entire episode, the Hedge Fund eventually started to lose money forcing them to close.

GameStop since then has been shooting higher crazily, wild enough to raise concerns from professional investors, regulators and even the White House in Washington.

As per the market experts, the sudden surge in the outlet's stock was the result of actions where investors who had used options to bet against the stock needed to cover those bets by buying shares.

The investments were made to adjust to a growing preference of online sales, stores that were not able to turn a profit were closed. When this was discovered, the investors and regulators cried foul, demanding the practice be deemed illegal.