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GameStop announced a stock split, a CFO departure, and layoffs this week.
Spencer Platt/Getty Images
GameStop
was back in the news this week after the company announced a stock split, a CFO departure, and corporate layoffs. Its stock has been volatile, but Reddit traders haven’t given up—and neither have short sellers betting against it.
GameStop
stock (ticker: GME) closed at $128.54 on Friday. That’s up 65% from its 52-week closing low of $78.11 but down nearly 48% from its 52-week closing high of $247.55.
It’s also a long way from its record close of $347.51 reached on Jan. 27, 2021, as retail investors hyped the stock on social media sites and online forums in an attempt to squeeze short sellers betting on the price to decline.
Though many on Reddit’s popular WallStreetBets investing forum moved on from
GameStop
stock after the initial pop, the company has garnered a following on some spinoff subreddits including SuperStonk and GME.
Such users have continued to follow the stock’s twists and turns, and have urged other Reddit users to buy, hold, and directly register GameStop shares to limit the amount of shares available for prospective short sellers to borrow.
A short seller is an investor who borrows stock and then sells it. Their goal is to later buy and return the same amount of shares at a lower price. The difference, minus fees, is their profit.
Ihor Dusaniwsky, managing director at short selling analytics firm S3 Partners, told Barron’s he estimates 13.26 million GameStop shares were recently shorted, or 21% of shares available for trading. He said that is down 14% over the last 30 days.
On GameStop-friendly Reddit forums, users celebrated the coming four-for-one stock split because they think it will force more short sellers to cover, kicking off a larger squeeze.
Dusaniwsky says stock splits don’t generally affect short sellers because their shares shorted are automatically adjusted for the split and the extra shares offset the price jump.
“But, in cases where a stock split is considered to be a positive sign for future price moves, shorts may be caught in a momentum squeeze as short term due to sudden volatile and dramatic price moves,” he said. “Recent GME short sellers may be quicker to pull the trigger in such a squeeze if they did not get the benefit of GME’s price weakness in January, mid-March and April.”
The split could have an impact on options trading activity, according to Susquehanna Financial Group derivatives analyst Christopher Jacobson. He expects the options volumes to increase to account for the split.
“On top of that, one could make the argument that the new lower split-adjusted stock price (and associated option pricing, in absolute terms) could open the door to incremental investors who may have shied away previously due to the higher (absolute) prices, although that would be difficult to gauge,” Jacobson added.
The GameStop investors on Reddit, who call themselves apes, are also excited about the company’s plans to launch a marketplace for nonfungible tokens, though experts like Wedbush analyst Michael Pachter are skeptical of the company’s prospects.
“To be fair, Ryan Cohen has a cultlike following, so when he says something like ‘NFT marketplace’, the apes start drooling over the potential,” Pachter says, referring to the Chewy co-founder and GameStop chairman. “Never mind that there are already several unprofitable companies in the space, that GameStop’s core customer is a console gamer (while NFTs are primarily available in PC games) and that there is virtually no overlap between GameStop’s customer base and those who trade NFTs. It sounds, nifty, though.”
Asked about why the stock is still trading so high—Pachter has a $30 price target— he told Barron’s that he has observed a material uptick in short sellers calling him who are interested in betting against the stock. He says the amount of calls about GameStop has gone from next-to-nothing to two-to-three calls a week the last several weeks. He says the Reddit users keep buying, and short sellers have been hurt by high fees to borrow stock.
“The Reddit Raiders refuse to give an inch,” Pachter says. “The borrow is tight, and the Apes keep buying.”
Cohen became the board’s chairman in June 2021. The company hired executives and employees with e-commerce, technology, and blockchain expertise, and invested in fulfillment and customer care efforts to help turn things around for the retailer.
One of the high-profile hires was
Amazon
alum Mike Recupero, who was just replaced as chief financial officer by Diana Jajeh after roughly a year on the job. Jenna Owens, an Amazon alum who joined in March 2021, left the chief operating officer role after seven months.
Write to Connor Smith at [email protected]
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