GameStop Shares Slide Below $90 As Reddit Rout Continues And Investors Lose Billions

GameStop's stock price gyrated in early trading on Wednesday, briefly sliding below $90 as shares in the video game retailer continued to lose altitude after a spectacular rally over the last week. The dip suggests that the popular WallStreetBets Reddit stock market discussion board that has helped drive the run-up may be losing its magic to move the market.

The GameStop tumble 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 level of 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.

GameStop shares were trading at $93.12, up 3%, as of 10:25 a.m. Eastern time. The stock price had been as high as $483 only last Thursday -- a plunge of more than 80% in less than a week.

"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 drop in GameStop shares, which fell 60% on Tuesday alone, could result in significant losses for some of the individual investors who had ridden the positive stock market suggestions posted on WallStreetBets. The forum has soared in popularity in the past week, swelling to 8 million members. GameStop's shares hit an all-time high of $483 on Thursday amid social media chants of buy, buy, buy. 

Since then, GameStop's 81% stock-price dive has erased nearly $29 billion in the company's stock-market value, which at its height last week was $35 billion. On Tuesday that stock market value, or market capitalization, sank to $6.3 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 fell 40% on Tuesday to just under $8 each. That stock had been as high as $20 last week. BlackBerry's shares, which had climbed to $28 last week, tumbled 21% on Tuesday to $11.50, while Koss slid 43%.

The acting chairwoman of the U.S. Securities and Exchange Commission, Allison Herren Lee, told NPR on Monday that the stock market regulator is looking into different aspects of the sudden rise in GameStop shares, 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.

Naked Brand Group, which sells intimate apparel for both men and woman, on Monday 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 91 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.

The Associated Press contributed to this report.

First published on February 2, 2021 / 12:31 PM

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