GameStop shares plunged 60 per cent Tuesday in a further reversal of the recent blockbuster gains that grabbed people’s attention far beyond Wall Street. The video game retailer’s stock shot up an eye-popping 1,600 per cent in January following a social-media led campaign to boost the price at the expense of big Wall Street funds who were betting on a decline. The dramatic increase, with little connection to investing fundamentals, spurred warnings that things could turn around just as quickly. GameStop shares fell from $135 to $90. The 60 per cent drop was the worst yet for the stock and follows a 31 per cent decline a day earlier. The stock had risen as high as $483 last Thursday, far above the $17 it fetched at the beginning of the year. The sudden swoon this week could dash some investors’ hopes of cashing in big. “These things can last longer than people expect, but when they unwind, they can unwind pretty fast,” said Ross Mayfield, investment strategist at Baird. “When it’s complete speculation mania and gambling, someone is going to be left holding the bag.”
The extreme moves in GameStop have been driven by a frenzy of speculative trading and appear to have little to do with the actual prospects of the company, which has been losing money consistently.
The business model of the mall-based retailer of physical copies of video games has taken a beating as fewer people go out shopping in malls and as more people download video games instead of buying them in stores. That led some big financial institutions to “short” the stock, or bet on the price to fall.
As GameStop’s shares plunged Tuesday, its followers on Reddit got some encouragement from Mark Cuban, the entrepreneur, and owner of the Dallas Mavericks. Besides GameStop, which is based in Grapevine, Texas, shares of favorites of the online crowd fell as well. AMC Entertainment fell 41 per cent, headphone maker Koss Corp. slid 43 per cent and BlackBerry dropped 21 per cent. The S&P 500 index, meanwhile, closed up 1.4 per cent