GameStop Record Run Gives Win to Reddit Army in Citron Clash
(Bloomberg) -- In the battle between short-seller Citron Research and an army of Reddit-charged day traders, GameStop Corp.’s seemingly endless rally to an all-time high has given the stock’s bulls a win, though not without controversy.
GameStop’s 83% gain through Friday comes after it more than doubled the week before and marks the most volatile 10-day period on record, data compiled by Bloomberg show. The stock was halted at least four times in New York trading on its way to a a record close. The stock surged 51% Friday to $65.01.
At one point, the video-game retailer was the most actively traded U.S. company with a market value above $200 million, data compiled by Bloomberg show, as millions of shares exchanged hands every few minutes.
GameStop declined to comment.
Reddit users continued to pump up their bets with one user saying they relied on it to pay their student loans.
GameStop’s parabolic rise, which has come amid steady and elevated short interest and increasing volume, has showcased the divide between retail bulls and bears betting on a quick return to reality. More than 193 million shares were traded on Friday, marking the most active day for the company since it went public in 2002.
GameStop became a “cult stock because of Ryan Cohen’s success with Chewy” and retail investors “appear confident that he can implement omnichannel initiatives that will materially grow their earnings,” Wedbush analyst Michael Pachter said in an email.
For the company to be worth $50 a share it would have to quickly double their growth, Pachter, who has a $16 price target which is the second highest among analyst tracked by Bloomberg, continued. In order to give GameStop credit for higher earnings power, Pachter, who rates the stock at neutral, wants to see Cohen’s strategy.
Reddit’s ‘Angry Mob’
A backlash against Citron by some vocal Reddit users over its views on GameStop came to a head on Friday when the short seller said it will stop commenting on the stock following the actions of “an angry mob.”
“We are investors who put safety and family first and when we believe this has been compromised, it is our duty to walk away from a stock,” Citron managing partner Andrew Left wrote in a Friday letter.
The statement came a day after Left said in a YouTube video that he’d “never seen such an exchange of ideas of people so angry about someone joining the other side of a trade,” referring in part to Reddit users who have been particularly vocal on the social media site in seeking to promote their positive opinions on the video-game retailer’s stock.
GameStop is up 245% in January to date, with its average daily rolling 10-day volatility peaking at the highest level in the nearly two decades the stock has been trading, data compiled by Bloomberg show. Friday’s eye-popping surge fueled its market value above $4.5 billion at its peak.
As the saga played out this week, GameStop fans clashed with Citron after the short seller critiqued shares in a tweet on Tuesday and made plans for a Twitter Inc. livestream the following day. The event was initially pushed back for the inauguration of President Joe Biden and then again on Thursday due to attempts to hack the short-seller’s Twitter account.
On Thursday afternoon, Left posted a YouTube video where he discussed the company, detailing five reasons why he thinks shares of the Grapevine, Texas-based company will “go back to $20.” That’s less than a third of the $65.01 the stock ended Friday’s volatile session at.
On the Sidelines
Wall Street analysts have largely stayed quiet amid the stock’s recent bout of volatility. CFRA Research analyst Camilla Yanushevsky reiterated her sell rating on Jan. 15 and credited the bulk of last week’s gains to a short squeeze after activist investor and Chewy Inc. co-founder Ryan Cohen was added to GameStop’s board.
Bearish bets have remained steady with 140% of available GameStop shares currently sold short, according to data compiled by S3 Partners. Bears have seen more than $3.3 billion mark-to-market losses this year, according to the financial analytics firm.
“While older existing shorts have been covering some of their positions due to a profit-loss based short squeeze, there is a queue of new short sellers wanting to get short exposure in GME after its recent run-up,” Ihor Dusaniwsky, S3’s managing director of predictive analytics, said by email.
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