So about 4 months ago a small retail outlet that acted as a sales point and exchange mart for videogame that had a rather tepid market cap of $150 million became the object of a play by Wall Street's finest Hedge Fund playing their usual game of "Wakamole" the well tested game of shorting a small company -- don't kid yourself Wall Street knows how to play the game well, using "unattributable" specialized journalists they were able to push down the price of the company's shares all the way down the $2.46 -- a nice little earner if you sold the shares at $30 and have to buy them back at $2.00
Generally, it's a well-known game "picking up dimes in front of a steam roller" a good game with no real losers (aside from the company). One fly in the ointment was Michael Burry who has been adamant since 2019 that GameStop is actually a good company and that the new management has a "good plan", and that the company is undervalued.
Enter the Subreddit play of wacking the Hedge Fund industry that lives in the world of shorting stocks. The objective here was to show Wall Street that the little people can beat Wall Street into submission....and they did, at least for short strategy hedge fund died over the past 10 days.
The market cap of GME went all the way from $10 to $450 in the space of a few weeks, it had been declining for the past few years (because of Wall Street little game). The small guy did it by buying all the shares of the company over and over again. Last Thursday 92 million shares of GME exchanged hands -- the company has only 46 million shares outstanding (that can be traded as they are not owned by insiders)
So a market cap increased from $150 million all the way to $37 billion -- everyone was very excited but few thought of the consequence of teaching Wall Street a lesson; because although GME is maybe worth more than $150 million it's certainly not worth $37 billion. Already, the price has declined by nearly 50% -- with 92 million shares traded on Thursday, there's not a lot of equity built in those positions. Let's say that GME is worth $1 billion; that means that there are "paper losses" of $36 billion out there.
Who's gone pay: The small guy who got a loan to buy GameStop at $400 in the hope that this crazy rise would continue, not understanding that with a volatility of 70% the odds of the price rising to $900 per share were the same as the odds of the price dropping to zero.
Needless to say that some guy(s) will try to sue Robinhood or Ameritrade -- when they put a stop to the ability to buy more shares (it could be nefarious, but the reality of collateral posting makes more sense!). They will also sue Robinhood when their investment of $400 is worth $30. Because, you know!
Final note: looking at the financials, GME is not a great company; declining revenues and net losses (not as bad as 2019 but 2020... were bad. Not sure why GME was the target of a short attack, but numbers-wise performance is not great and it seems to be going down the tube, although that's a 30,000 feet analysis just looking at the last three years P&L
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