Blackberry and GameStop aren’t the industry giants they once were. And yet their stocks have been soaring this week. And it is thanks to Reddit… and Elon Musk.
To explain why, we first have to take a step backwards.
First, Whats up with GameStop stock?
Last week subreddit r/WallStreetBets screwed over a hedge fund.
The group, which describes itself a ‘like 4chan found a Bloomberg Terminal’, set it sites on GameStop.
The U.S. company, which also owns EB Games here in Australia, has been reporting significant losses for a decade. Suffice to say, this has been reflected in its mediocre stock price.
Then on January 11 the company appointed Ryan Cohen to the board. The Chewy Inc co-founder is said to have a 10 per cent stage in GameStop and wanted the company to focus more on digital sales.
This resulted in stock market commentator, Citron Research, to predict a share price drop.
Tomorrow am at 11:30 EST Citron will livestream the 5 reasons GameStop $GME buyers at these levels are the suckers at this poker game. Stock back to $20 fast. We understand short interest better than you and will explain. Thank you to viewers for pos feedback on last live tweet
— Citron Research (@CitronResearch) January 19, 2021
From there, WallStreetBets began saying that the stock was healthier than ever, most likely as a joke. But this resulted in people actually buying GameStop stock in droves and driving the price up exponentially. It went from a meme stock to being up by 505%
This was a problem for anyone who shorted on GameStop stock off the back of more traditional market predictions from the likes of Citron Research.
This very basically means (it’s much more complicated than this and I’m not a markets journalist) that investors or hedge funds borrow stock, rather than buy it, betting that the price will drop even further.
They then buy these stocks back at the lower price and the borrower pockets the difference. It’s a highly risky move but considering the decade-long track record of GameStop stock, it probably seemed liked a sure thing.
Instead, it went sitting at around $US4 per share in July of 2020 to around $US148 at the time of writing.
While it did drop again throughout this process, the stock jumped up again after Elon Musk tweeted ‘gamestonk!!’ and linked out to the subreddit.
— Elon Musk (@elonmusk) January 26, 2021
This has resulted in hedge funds like Melvin Capital Management asking for a $3.8 million bailout. Two other hedge funds, Citadel and Point72 came to its aid but to no avail. Melvin Capital closed its position on Wednesday at a 100 per cent loss.
While it’s unclear whether targeting hedge funds was on purpose, on WallStreetBets user took this as opportunity to go after CNBC for its own perceived manipulation of the market.
“These funds can manipulate the market via your network [CNBC] and if they screw up big because they don’t even know the basics of portfolio risk 101 and using position sizing, they just get a bailout from their billionaire friends at Citadel […] We don’t have billionaires to bail us out when we mess up our portfolio risk and a position goes against us. We can’t go on TV and make attempts to manipulate millions to take our side of the trade. If we mess up as bad as they did, we’re wiped out, have to start from scratch and are back to giving handjobs behind the dumpster at Wendy’s.
Seriously. Motherfuck these people. I sincerely hope they suffer.”
What does this have to do with Blackberry?
After first conquering GameStop stock, it seems like WallStreetBets is also behind the surprising recent surge in Blackberry stock.
Discussion about Blackberry being a buy cropped up on the subreddit earlier in week, which quickly made the price jump. Although it hasn’t seen the same attention as GameStop.
It’s up roughly 38 per cent since last week after seemingly being targeted in the subreddit. At the time of writing its sitting just shy of $US19 a share.
Other stocks that have been impacted include Nokia and the bankrupt Blockbuster Video.
WallStreetBets banned from discord and set subreddit to private
On Thursday the WallStreetBets server was banned by Discord for alleged hate speech and spreading of misinformation. The subreddit was subsequently set to private. Read the full story here.