13 ms·

GameStop missed out on capitalizing on the Reddit rally

54 points by andrewon 6y ago

emteycz 6y ago
Why did news report they capitalized on it a week or two ago, then?
- gruez 6y ago
  Are you thinking of AMC?
  - emteycz 6y ago
    You're right, my bad.
andrewon 6y ago
GamsStop seems to be overly cautious. The rally is public information. Everyone knows they were not doing that well with respect to the price.
- jboog 6y ago
  IF you read the article you'd see It's illegal to sell stock when you have substantial financial information that isn't available to the public yet--which they did.
  - londons_explore 6y ago
    Even if the execs have said information, I believe it would be legal for them to pick a team to decide when to sell more stock, where that team doesn't have access to anything non-public. The execs can then delegate the decision to the team without the knowledge, which would be legal (I think!).
    - dmurray 6y ago
      Also, they can call a press conference, tell everyone the material inside information, and then sell the shares. This is completely normal: every company does when it has material non-public information and doesn't want to wait for the next quarterly earnings report.
      - kasey_junk 6y ago
        I got the impression they didn’t have their ducks in a row to know what that info was. Just that they couldn’t meet the standard. It’s not uncommon for a finance team to spend weeks preparing for even normal SEC filings.
      - londons_explore 6y ago
        I believe that is also tricky. In most companies, there are all kinds of incomplete and unreliable financial indicators mid-quarter. It's only when the accountants add it up and the end of the quarter and the auditors check it is it suitable for release to the public. The incomplete information is considered "material non public info" which stops the execs buying shares, but it isn't considered reliable enough info for the company to publish without risk of execs being sent to prison for publishing false info.
      - jboog 6y ago
        This situation is literally outlined in the article and GME decided against doing that. The article really isn't very long, I suggest reading it!
    - spockz 6y ago
      I think it is still tricky. When the big boss assembles a team (which doesn’t happen normally) and asks “hey figure out whether we need to buy this stock”, it still could be construed as acting based on insider information.
PaulHoule 6y ago
In a perfect world they would have bought Valve (to get Steam).
- hhmc 6y ago
  How? Valve are a private company, you can’t force them to sell. If they wanted to be public, they surely would be already.
- kungito 6y ago
  Yeah because you can close a sale in 30 minutes
- ziml77 6y ago
  Buying a company isn't like buying a product off a store shelf. Valve wouldn't sell to GameStop and GameStop can't take control by buying shares because Valve isn't public. I know sometimes buyouts can look easy but there's often some massive power imbalance at play. In some cases it's having enough money to make even the strongest willed person give in. In other cases it's a matter of knowing that you can't compete so you either sell or get destroyed by them a few months later anyway.
- Tuna-Fish 6y ago
  Valve is not, and has never been, for sale. It's the "lifestyle company" of a bunch of Microsoft Millionaires, who wanted to have fun making games. Then they were in the right place at the right time to make Steam. There is no realistic point in their history when they would have both seemed to be this successful, and would have entertained buyout offers.
  - PaulHoule 6y ago
    That's why i said 'perfect' (for gamestop) The two-sided market structure makes it almost impossible for a new entrant in that area. Steam remarkably has good feelings from both gamers and developers and the current ownership structure helps keep it that way: not squeezing the last penny and not being inclined to throw Steam under the bus to chase the new shiny.
deleted 6y ago
[deleted]
RavlaAlvar 6y ago
I am ignorant on finance. But if GameStop had considered to offer new shares, wouldn’t some investment bank have to agree to buy them on an exorbitant price, or could they just sell them on open market?
- kgermino 6y ago
  They could just sell them on the open market (an At The Market offering). They could also sell big lots to banks which planned to immediately flip them to retail investors.
  - itsoktocry 6y ago
    >They could also sell big lots to banks which planned to immediately flip them to retail investors No big bank would touch this. An ATM offering had potential, but the amount of exposure this incident had meant that this was a risky grey area - legally and ethically.
    - JumpCrisscross 6y ago
      > No big bank would touch this Hire a little bank. Indemnify them. Also, the big banks gladly sold AMC and American Airlines stock.
      - itsoktocry 6y ago
        Not sure about AMC, but AA certainly has the implicit support of the government. The minute GME became a populist symbol of Main Street vs Wall Street, I think it became toxic. Of course, I'm speculating. But what else explains it?
        JumpCrisscross 6y ago
        > what else explains it? The reasons in the article.
alex_duf 6y ago
No they didn't. It would have been unethical to be the boss of the company that offer new shares, got them bought on a market, but also unblocking all the short sellers in the process. The consequence would be shorters would be happy, the price would drop, the people who bought into the hype would lose, and the gamestop boss would look like the guy who helped the hedge funds and stole from the common people.
- gowld 6y ago
  Why does "what he looks like" to uninformed stock speculators matter? AMC raised $300M in the rally and no one seemed to mind. People who bought into the hype lost anyway.
- pjc50 6y ago
  > It would have been unethical to be the boss of the company that offer new shares, got them bought on a market, but also unblocking all the short sellers in the process. Why? What general rule of ethics is this violating? How could you write this as a general rule to be applied in the future?
- mrfredward 6y ago
  >It would have been unethical to be the boss of the company that offer new shares, got them bought on a market, but also unblocking all the short sellers in the process. The stock market exists so that companies can access capital. If Gamestop were able to raise money, pay off some debt, avoid closing some stores and laying people off in the future, and fund a turnaround plan, that would have been the best possible outcome. The only ethical issue is whether all the information is out there for investors, and in this it wasn't, so they couldn't raise money until whatever they are holding on to is announced.
- kgermino 6y ago
  They absolutely missed out on an opportunity. You can argues it would have been unethical for them to take advantage of it. But there was an opportunity to raise a substantial amount of money, which would help the company. Unlike AMC and AA they couldn’t easily take advantage of it due to disclosure requirements.
jug 6y ago
Due to regulatory restrictions? That sucks if true. GameStop wasn't even part of this other than a target. They didn't instigate anything.
- gowld 6y ago
  "not being allowed to join a pump and dump scam, even if they aren't pimping" isn't the worst suffering in the world.
thekyle 6y ago
Would the SEC have even allowed them to issue shares? Hertz tried to issue new shares when their stock price was irrationally bid up but was blocked by the SEC. Its a little bit different because Hertz was going bankrupt but otherwise the situations are very similar.
- JumpCrisscross 6y ago
  > Would the SEC have even allowed them to issue shares? From the article: “Other companies in the midst of the Reddit frenzy whose financial quarters finished at the end of December and had already updated investors on their latest financial performance, were able to sell stock when their shares rallied at the end of January.” Hertz was a bankrupt company. Their shares were legally worthless. And they didn’t have a shelf offering already authorised. Different facts and circumstances.
- drexlspivey 6y ago
  AMC did exactly that, they sold a bunch of new shares at an inflated price
  - dcolkitt 6y ago
    Correct me if I’m wrong, but I thought the new AMC shares came from Silverlake exercising its convertibles, not AMC itself. Of course it still benefited AMC by reducing its debt load.
    - deleted 6y ago
      [deleted]
    - drexlspivey 6y ago
      It was both, AMC completed an at the market offering during the pump and convertible bond holders also converted to stock
      - dcolkitt 6y ago
        You are correct. Thanks for pointing that out.
tinyhouse 6y ago
They can still capitalize on that. Their stock price is now more stable and is x4 than what it was a couple of months back.
ectocardia 6y ago
A practical win-win-win outcome might've been for the GameStop board to issue expensive shares to institutional short coverers and then to declare a one-time special dividend-- not quite $300/share, but something that'd appear to serve "the interests of the shareholders". (Years later, there'd be scholarly works about how the GameStop Maneuver differs from a Ponzi Scheme.)
mchusma 6y ago
I think selling stock with proper disclosures to the people who wanted it should have been achievable. This was in fact the biggest bull case I could think of: that by getting maybe $1B on the balance sheet they would be well capitalized to take on projects to revamp themselves.

54 points by andrewon 6y ago

emteycz 6y ago

Why did news report they capitalized on it a week or two ago, then?

gruez 6y ago
Are you thinking of AMC?
- emteycz 6y ago
  You're right, my bad.

andrewon 6y ago

GamsStop seems to be overly cautious. The rally is public information. Everyone knows they were not doing that well with respect to the price.

jboog 6y ago
IF you read the article you'd see It's illegal to sell stock when you have substantial financial information that isn't available to the public yet--which they did.
- londons_explore 6y ago
  Even if the execs have said information, I believe it would be legal for them to pick a team to decide when to sell more stock, where that team doesn't have access to anything non-public. The execs can then delegate the decision to the team without the knowledge, which would be legal (I think!).
  - dmurray 6y ago
    Also, they can call a press conference, tell everyone the material inside information, and then sell the shares. This is completely normal: every company does when it has material non-public information and doesn't want to wait for the next quarterly earnings report.
    - kasey_junk 6y ago
      I got the impression they didn’t have their ducks in a row to know what that info was. Just that they couldn’t meet the standard. It’s not uncommon for a finance team to spend weeks preparing for even normal SEC filings.
    - londons_explore 6y ago
      I believe that is also tricky. In most companies, there are all kinds of incomplete and unreliable financial indicators mid-quarter. It's only when the accountants add it up and the end of the quarter and the auditors check it is it suitable for release to the public. The incomplete information is considered "material non public info" which stops the execs buying shares, but it isn't considered reliable enough info for the company to publish without risk of execs being sent to prison for publishing false info.
    - jboog 6y ago
      This situation is literally outlined in the article and GME decided against doing that. The article really isn't very long, I suggest reading it!
  - spockz 6y ago
    I think it is still tricky. When the big boss assembles a team (which doesn’t happen normally) and asks “hey figure out whether we need to buy this stock”, it still could be construed as acting based on insider information.

PaulHoule 6y ago

In a perfect world they would have bought Valve (to get Steam).

hhmc 6y ago
How? Valve are a private company, you can’t force them to sell. If they wanted to be public, they surely would be already.
kungito 6y ago
Yeah because you can close a sale in 30 minutes
ziml77 6y ago
Buying a company isn't like buying a product off a store shelf. Valve wouldn't sell to GameStop and GameStop can't take control by buying shares because Valve isn't public. I know sometimes buyouts can look easy but there's often some massive power imbalance at play. In some cases it's having enough money to make even the strongest willed person give in. In other cases it's a matter of knowing that you can't compete so you either sell or get destroyed by them a few months later anyway.
Tuna-Fish 6y ago
Valve is not, and has never been, for sale. It's the "lifestyle company" of a bunch of Microsoft Millionaires, who wanted to have fun making games. Then they were in the right place at the right time to make Steam. There is no realistic point in their history when they would have both seemed to be this successful, and would have entertained buyout offers.
- PaulHoule 6y ago
  That's why i said 'perfect' (for gamestop) The two-sided market structure makes it almost impossible for a new entrant in that area. Steam remarkably has good feelings from both gamers and developers and the current ownership structure helps keep it that way: not squeezing the last penny and not being inclined to throw Steam under the bus to chase the new shiny.

deleted 6y ago

[deleted]

RavlaAlvar 6y ago

I am ignorant on finance. But if GameStop had considered to offer new shares, wouldn’t some investment bank have to agree to buy them on an exorbitant price, or could they just sell them on open market?

kgermino 6y ago
They could just sell them on the open market (an At The Market offering). They could also sell big lots to banks which planned to immediately flip them to retail investors.
- itsoktocry 6y ago
  >They could also sell big lots to banks which planned to immediately flip them to retail investors No big bank would touch this. An ATM offering had potential, but the amount of exposure this incident had meant that this was a risky grey area - legally and ethically.
  - JumpCrisscross 6y ago
    > No big bank would touch this Hire a little bank. Indemnify them. Also, the big banks gladly sold AMC and American Airlines stock.
    - itsoktocry 6y ago
      Not sure about AMC, but AA certainly has the implicit support of the government. The minute GME became a populist symbol of Main Street vs Wall Street, I think it became toxic. Of course, I'm speculating. But what else explains it?
      - JumpCrisscross 6y ago
        > what else explains it? The reasons in the article.

alex_duf 6y ago

No they didn't. It would have been unethical to be the boss of the company that offer new shares, got them bought on a market, but also unblocking all the short sellers in the process. The consequence would be shorters would be happy, the price would drop, the people who bought into the hype would lose, and the gamestop boss would look like the guy who helped the hedge funds and stole from the common people.

gowld 6y ago
Why does "what he looks like" to uninformed stock speculators matter? AMC raised $300M in the rally and no one seemed to mind. People who bought into the hype lost anyway.
pjc50 6y ago
> It would have been unethical to be the boss of the company that offer new shares, got them bought on a market, but also unblocking all the short sellers in the process. Why? What general rule of ethics is this violating? How could you write this as a general rule to be applied in the future?
mrfredward 6y ago
>It would have been unethical to be the boss of the company that offer new shares, got them bought on a market, but also unblocking all the short sellers in the process. The stock market exists so that companies can access capital. If Gamestop were able to raise money, pay off some debt, avoid closing some stores and laying people off in the future, and fund a turnaround plan, that would have been the best possible outcome. The only ethical issue is whether all the information is out there for investors, and in this it wasn't, so they couldn't raise money until whatever they are holding on to is announced.
kgermino 6y ago
They absolutely missed out on an opportunity. You can argues it would have been unethical for them to take advantage of it. But there was an opportunity to raise a substantial amount of money, which would help the company. Unlike AMC and AA they couldn’t easily take advantage of it due to disclosure requirements.

jug 6y ago

Due to regulatory restrictions? That sucks if true. GameStop wasn't even part of this other than a target. They didn't instigate anything.

gowld 6y ago
"not being allowed to join a pump and dump scam, even if they aren't pimping" isn't the worst suffering in the world.

thekyle 6y ago

Would the SEC have even allowed them to issue shares? Hertz tried to issue new shares when their stock price was irrationally bid up but was blocked by the SEC. Its a little bit different because Hertz was going bankrupt but otherwise the situations are very similar.

JumpCrisscross 6y ago
> Would the SEC have even allowed them to issue shares? From the article: “Other companies in the midst of the Reddit frenzy whose financial quarters finished at the end of December and had already updated investors on their latest financial performance, were able to sell stock when their shares rallied at the end of January.” Hertz was a bankrupt company. Their shares were legally worthless. And they didn’t have a shelf offering already authorised. Different facts and circumstances.
drexlspivey 6y ago
AMC did exactly that, they sold a bunch of new shares at an inflated price
- dcolkitt 6y ago
  Correct me if I’m wrong, but I thought the new AMC shares came from Silverlake exercising its convertibles, not AMC itself. Of course it still benefited AMC by reducing its debt load.
  - deleted 6y ago
    [deleted]
  - drexlspivey 6y ago
    It was both, AMC completed an at the market offering during the pump and convertible bond holders also converted to stock
    - dcolkitt 6y ago
      You are correct. Thanks for pointing that out.

tinyhouse 6y ago

They can still capitalize on that. Their stock price is now more stable and is x4 than what it was a couple of months back.

ectocardia 6y ago

A practical win-win-win outcome might've been for the GameStop board to issue expensive shares to institutional short coverers and then to declare a one-time special dividend-- not quite $300/share, but something that'd appear to serve "the interests of the shareholders". (Years later, there'd be scholarly works about how the GameStop Maneuver differs from a Ponzi Scheme.)

mchusma 6y ago

I think selling stock with proper disclosures to the people who wanted it should have been achievable. This was in fact the biggest bull case I could think of: that by getting maybe $1B on the balance sheet they would be well capitalized to take on projects to revamp themselves.