GameStop’s surprise profit causes short squeeze, meme stocks soar

March 22 (Reuters) – Meme share GameStop Corp (GME.N) rose nearly 40% on Wednesday as the video game retailer’s first profitable quarter in two years squeezed bearish investors and sparked a rise in other stocks popular with retailers .

AMC Entertainment Holdings Inc (AMC.N) gained 3.4%. AMC and GameStop were at the heart of a 2021 meme-stock frenzy driven by small investors collaborating on social media.

Among other high-short meme stocks, Koss Corp (KOSS.O) climbed 9.5%, Bed Bath & Beyond (BBBY.O) reversed and fell 1.3%, while the Roundhill MEME ETF ( MEME.P) rose by 4.2%.

Grapevine, Texas-based GameStop, majority-owned and chaired by billionaire investor Ryan Cohen, recorded a 16% drop in costs during the quarter and surprised Wall Street analysts with a profit.

Investors saw this as an early sign of a turnaround for GameStop, whose core business of selling new and pre-owned video game discs is dwindling as consumers move to digital game downloading or streaming.

According to JPMorgan, GameStop was the second most traded U.S. stock among retail gamblers.

The stock reached its highest level in more than four months with 45 million shares changing hands at 11:35 a.m. ET, ranking among the top five most traded U.S. stocks.

“Fortunately, this turnaround is not due to meme investors, but to a really tangible fundamental event,” said David Wagner, portfolio manager at Aptus Capital Advisors.

A GameStop Inc store. is shown in Encinitas, California, U.S., May 24, 2017. REUTERS/Mike Blake/File Photo

However, not everyone was convinced.

The share’s rise “appears to be the result of good cost control rather than revenue growth, which is not ideal,” said AJ Bell Investment Director Russ Mould.

“Crypto, meme stocks, IPOs, SPACs and other speculative assets all peaked long ago and the easy-money frenzy of 2020-21 now looks like an anomaly on price charts, not the start of a brave new world. “


When there is a wave of demand from short sellers looking to exit their bearish bets amid a rise in a stock’s price, it pushes prices even higher, resulting in a short squeeze.

Another favorite among private investors – Carvana Co (CVNA.N) – rose 22% after the used car seller said it expects a smaller core loss in the current quarter.

Short sellers betting against GameStop have lost $610 million since the start of the week, analyst firm Ortex estimated, adding that about 24% of GameStop’s publicly available shares were in a short position.

Wedbush raised its price target on GameStop’s shares from $5.30 to $6.50 after the results, as the brokerage believes the lower cost structure reduces the risk of continued losses.

“We didn’t come because of shorts, we were here because of the brand name,” a retailer with the username “ApeBeyondTheMoon” wrote on the investor-focused forum

Reporting by Medha Singh in Bengaluru; Edited by Maju Samuel and Saumyadeb Chakrabarty

Our Standards: The Thomson Reuters Principles of Trust.


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