GameStop Shares Plunge 50% As WallStreetBets Traders Face Billions In Losses

Tuesday, February 2nd 2021, 1:30 pm
By: CBS News

GameStop's stock price plunged on Tuesday, falling more than 50% to around $110 a share. The drop also signaled that the popular WallStreetBets Reddit stock market discussion board — a major force behind last week's spectacular rally in the troubled video game retailer's shares and others'—may be losing its magic to move the market.

The GameStop drop followed a large reduction in short interest on the stock, which measures how many of the company's shares have been borrowed to sell. Many had pointed to that previously high short interest, and the fact that hedge funds and others betting against the video game retailer had been squeezed, as a reason GameStop's shares had soared.

The drop may also result in significant loses for some of the individual investors who had ridden the positive stock market suggestions posted on WallStreetBets, which has soared in popularity in the past week to 8 million members. GameStop's shares hit an all-time high of $483 on Thursday. 

Those shares have now fallen 77% to $110 in less than a week. That's erased nearly $27 billion in stock-market value for GameStop, which at its height last week has a market capitalization of $35 billion. On Tuesday that market value had sunk to $8 billion.

The share prices of other companies that have gotten boosterish mentions in WallStreetBets have suffered steep drops as well. Shares of movie theater chain AMC Entertainment were also down about 50% on Tuesday, to about $6.50 each. That stock had been as high as $20 last week. BlackBerry's shares, which had been as high as $28 last week, also fell Tuesday, to $11.

On Monday the acting chairwoman of the U.S. Securities and Exchange Commission, Allison Herren Lee, told NPR that the stock market regulator was looking into different aspects of the sudden rise in the shares of GameStop, including whether brokers acted appropriately and whether there had been any market manipulation. She also warned against companies trying to raise money by selling shares at prices that seemed to be inflated by social media driven traders and were not sustainable.

CBS MoneyWatch reported on Monday that the moderators of the WallStreetBets discussion board had recently detected a "large amount" of bot activity in the stock-recommendation content being posted to its group.

And on Monday, Naked Brand Group, which sells intimate apparel for both men and woman, announced it had sold more than 29 million shares in a follow-on offering at $1.70 each, raising $50 million for the company. The company, which is based in Auckland, New Zealand, is in the process of closing all of its stores in favor of online sales.

Naked Brand's shares had traded for as little as 7 cents each as recently as November. In its offering document, filed with the SEC, the company said its stock price had experienced "extreme volatility" in recent weeks. It said the price swings appeared to be driven by social media chatter as well as "short interest" in the company, as well as other factors.

On Tuesday, shares of Naked Brand fell to 94 cents each, a 45% drop from Monday's offering price. A spokesman for Naked Brand did not return a request from CBS MoneyWatch for comment.