Meme Stock Meltdown: Tough Times for Bed Bath & Beyond, AMC and GameStop

Meme stocks, or investments that go viral due to social media or stock market message boards, continue to make news in the markets – this time for remarkable price drops. Bed Bath & Beyond, AMC, and GameStop have all seen their stocks plummet lately.

Bed Bath & Beyond – which experienced a major price spike only a few weeks ago – announced on Wednesday that it was closure of 150 stores. Its stock fell from over $23 on August 17 to a current price below $10.

Theater chain AMC Entertainment issued a “special preferred stock dividend” called APE to its investors on August 22. The company issued the stock dividend as part of a plan to raise capital by issuing new shares instead of one stock split. The stock fell after the APE, with AMC losing about two-thirds of its value in the past two weeks.

GameStop – the ancestor of meme stocks, chaired by “meme baron” Ryan Cohen – has also struggled lately, dropping around 40% from a recent high in early August.

In 2021, the actions of memes like GameStop exploded in price due to large groups of retail investors promoting massive online purchases. A co-ordination GameStop “short press” in January 2021, its stock price surpassed $500, 30 times higher than its valuation of $17.25 at the start of the year.

Hedge funds that had heavily “shorted” GameStop – expecting its price to drop – panicked. Popular online brokerage Robinhood has frozen trades for GameStop and other meme actions, angering investors and politicians, as well as a class action lawsuit.

The entire GameStop stock market phenomenon has been the subject of a documentary titled Rise of the Playersand it will also be shown on the big screen in a new feature film with Seth Rogen and Pete Davidson.

What are meme stocks and why are they in the stock market? Find out why these stocks often trade well above their stated value and how online campaigns for meme stocks work.

To note: Meme stocks are highly volatile and have seen wild up and down price swings over the past few years. These actions carry a high level of risk and should be handled accordingly. If you are not an experienced investor, we recommend that you seek professional financial advice before investing money in the stock market.

What is a meme store?

Meme stocks are the stocks of companies that have gone viral online, mostly driven by social media hype. The price of a stock itself often increases considerably more than the value suggested by the financial performance of its company.

Meme stock companies are promoted in online discussion forums and social media sites like Reddit, YouTube, Twitter, and Facebook, usually through the sharing of memes. A meme is an idea or cultural signifier — often a humorous image or animated gif — that becomes popular online, usually through social media platforms.

Communities that promote meme stocks have their own terms and slangincluding “stonks” (a fun term for stocks) and “bagholder” (someone who holds onto a stock even after its price has crashed).

Who promotes online meme actions?

The WallStreetBets subreddit – commonly referred to as /r/WallStreetBets or WSB – on social media site Reddit is the epicenter of meme stocks. Launched in 2012 by Jaime Rogozinski, the community bulletin board has since experienced drama related to the removal of moderators with possible conflicts of interest.

The header image from the Wall Street Bets subreddit page

/r/WallStreetBets

WallStreetBets went from internet niche to household name when it pushed GameStop in January 2021. First promoted by user Roaring Kitty in August 2020, GameStop’s short squeeze hit the right notes to go viral – an outdated but popular gaming company that Wall Street had left for dead, plus a chance for small investors to “stick the man out” by hurting hedge funds that had heavily shorted the stock.

The WallStreetBets subreddit reached its zenith of virality on January 26, 2021, when Elon Musk tweeted a link to the painting with a one-word message: “Gamestonk!!” The WallStreetBets community currently has 12.5 million members.

Before GameStop, WallStreetBets had become popular online for its aggressive trading strategies, low-key humor and YOLO (“you only live once”) attitude towards investing, with Vice magazine calling it “the 4chan of finance. “. A surge in subreddit contributors in the late 2010s was likely fueled by the rise of commission-free brokerages like Robinhood and mobile stock trading.

Other internet sites, such as social media company StockTwits, have been involved in promoting meme actions, but not on the same scale or with as great an impact as WallStreetBets.

How did meme stock prices get so high?

It’s all about critical mass. For a meme stock to make a noticeable spike in price, enough investors must be convinced to buy the stock. As early adopters convince investors to buy, the price begins to rise, attracting more FOMO (“fear of missing out”) investors. At some point in a meme stock’s rise, the owners of the stock begin cashing in, which drives the price down again.

In GameStop’s case, deep short positions held by hedge funds further helped fuel the share price rally. As investors pushed GameStop’s price higher, short sellers were forced to buy the stock to cover their positions, driving the stock price even higher.

What are the companies whose shares have become meme shares?

Aside from GameStop, AMC, and Bed Bath & Beyond, several other companies have been taken on the same stock over the past few years. These companies include:

  • BlackBerry Ltd. (BB) — A Canadian cybersecurity firm best known for its outdated wearables
  • Express Inc. (EXPR) – An American fashion retailer
  • Koss Corp. (KOSS) – An American headphone manufacturer
  • Nio (NIO) — A Chinese electric car producer
  • Nokia Corp. (NOK) – A Finnish telecommunications company best known for its “bricked” mobile phones
  • Novavax (NVAX) — An American pharmaceutical company
  • Palantir (PLTR) – An American software company
  • Peloton (PTON) – An American cycling/exercise company
  • Robinhood Markets Inc. (HOOD) — A Commission-Free Online Brokerage
  • Snap (SNAP) – An American social media company
  • Tesla (TSLA) – An American electric vehicle company
  • Tilray Brands (TLRY) – An American packaged goods and cannabis company
  • Vinco Ventures Inc. (BBIG) — A holding company for digital businesses
  • Virgin Galactic (SPCE) – An American spaceflight company

AMTD Digital Inc., a Hong Kong-based fintech company with about 50 employees, is a new meme stock that caused a stir this summer. From nearly $16 in mid-July, its stock price jumped to more than $2,000 in early August, putting its value at 4,000 times earnings and temporarily placing it in the top 10 of the most publicly traded companies. precious in the world. Its price has since dropped to just over $100.

How are meme actions different in 2022?

While the practice of driving stock prices well beyond the value of their companies has been popular in recent years, the novelty of the concept may have worn off in 2022.

Casual investors who participated in the GameStop squeeze might not be as motivated to participate in the creation of less iconic companies like Tilray Brands or Palantir. They also might have lost a lot of money last year when GameStop’s price crashed in 2021 from a high of $483 to $53.50 in about a week.

In an interview with Yahoo Finance, Interactive Brokers chief strategist Steve Sosnick says the pool of meme stock investors has shrunk significantly, making GameStop-style stock price spikes less likely.

“[With] the initial craze for meme stocks, you had people who had never invested before investing money in these stocks and investing,” Sosnick said. Now it seems to be the same cast of characters chasing the same list of names with a few new exceptions every so often.”

Ironically, meme stocks may have become a part of the mainstream stock industry they threatened in 2021. Financial adviser Roundhill Investments has created an exchange-traded fund (a tradable mutual fund) based on stocks of memes. The fund currently includes stocks such as AMC, Palantir and Novavax.

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