GME Financial Conflict

• Financial conflicts can exist when 2 or more factions with opposing financial interests compete on a particular financial or market outcome
• A financial conflict has apparently emerged over the outcome of GME stock
  • One side, GME short sellers, also known as "shorts" or "bears", gains financially when the price of GME goes down
  • The other side, GME shareholders, also known as "bulls", gains financially when the price of GME goes up
• As the conflict has evolved, so too have the competing narratives put forth by both sides
• The conflict ends when one side capitulates
• It remains unclear what specific outcome can be expected in either direction, and in what kind of time frame
• Following the successful turnaround of the company, GameStop has moved into its next phase: the reinvention of the company
  • In May 2026, GameStop formally proposed an acquisition of eBay

In the mid 2010s, some participants in the financial markets, such as the hedge fund Melvin Capital, saw GameStop as a vulnerable company with a non-viable business model, and that the company therefore was ultimately destined for bankruptcy.

With this point of view towards the company, they deployed an investment strategy of short-selling GME stock with the aim of profiting from the demise of the company.

For a period of time in the late 2010s, GameStop was indeed showing signs of weakness and was struggling financially. Starting around 2018, GameStop began showing significantly reduced earnings, and was soon losing hundreds of millions of dollars per year. The video game industry was increasingly moving towards digital downloads, and the leadership of GameStop at that time had failed to properly address this.

The COVID-19 pandemic put additional pressure on the company, futher accelerating losses in revenue and closures of stores.

The case against GameStop was looking like a sensible bet. The stock market at the time indicated such — in 2019, the short interest of GME at that time started climbing rapidly. Notably, from 2019 through to early 2021, the short interest of GME stock exceeded 100%.

Contrary to those that were betting against GameStop, some investors took the opposite position, believing that "the market was underestimating the prospects of GameStop’s legacy business and overestimating the likelihood of bankruptcy," and began investing in GME. Notably, Michael Burry opened a GME position in late 2018; in early 2019 Ryan Cohen had referred to himself as "a large holder of GameStop" in an email to Michael Burry, and in late 2019 Keith Gill opened a position in GME.

Keith Gill studied GME stock and began sharing his view on social media as Roaring Kitty on YouTube and Twitter, and as DeepFuckingValue on Reddit. In September 2019, he posted for the first time as DeepFuckingValue in WallStreetBets on Reddit, showing GME call options that expired in January 2021, drawing interest and skepticism from Reddit users. Keith Gill continued to post about GME and GameStop on social media throughout 2019 and 2020.

By the second half of 2020, coinciding with Ryan Cohen's increased accumulation of GME stock and the rising price of GME, these social media posts began attracting significant attention. As the price of GME was rising, so too did the value of Keith Gill's position which he continued to share regularly on WallStreetBets, giving increased credibility and interest in his position by other social media users. This growing momentum caused other investors to buy shares of GME stock, which caused the price of the stock to rise further, which attracted even more attention across social media, in an accelerating feedback loop.

The emergence of hundreds of thousands of retail investors, drawn towards this story through social media, completely changed the situation and narrative about GME, despite that GameStop was still very weak financially.

During this turbulent time, the trading price of the stock was clearly detatched from the fundamental value of the company, yet the price continued to rise. The GME short interest was still very high amidst the rising price of the stock, and this was an important component of the entire narrative at the time. Many retail investors bought shares of GME not primarily because they thought it was a good investment into the company GameStop, but because they felt that they were going to profit from standing up against the short sellers that were betting on the demise of the company by buying the stock and creating a short squeeze.

A commonly found sentiment was that although individually most of these investors were small and simple compared to the much larger and more sophisticated hedge funds they found themselves against, that, together they were stronger — "apes together strong." Thus emerged on WallStreetBets the somewhat self-deprecating moniker "apes" to refer to the swarm of hundreds of thousands of individuals that were buying GME stock with shared enthusiasm and financial interest.

By January 2021, amidst great enthusiasm by retail shareholders across social media, the price of GME stock was rising exponentially with no signs of slowing down. It was at this point when there were clearly two sides with opposing interests competing over the outcome of GME. As the price of the stock continued to rise, the apes believed they were winning, and arguably, they were. This situation appeared as if it was going to continue until the GME short sellers clearly capitulated entirely, and the multitude of GME investors attained a clear victory. That did not happen.

On January 28, 2021, approximately 178 financial institutions, in unison, placed GME (and some other stocks) in "sell-only", restricting the ability for investors to purchase shares of GME. These restrictions remained in place for several days. This effectively neutralized the momentum of the rising price of GME stock, and the price of GME began to fall, against the interest of the hoard of retail investors that were buying the stock. Many GME investors felt that this action was an unfair intervention by the incumbent Wall Street institutions seeking to protect their own interests. Regarding this event, Jim Cramer would later admit that "it was totally rigged."

The events of January 2021 are commonly referred to as "the GameStop short squeeze," or, by some GME shareholders as "the GME sneeze." The movie Dumb Money (2023) gives a dramatized portrayal of these events.

By the beginning of February 2021, the price of GME had lost most of its gains. Despite the loss of momentum and the falling price of GME, many investors continued to hold on to their shares. In late February, for unclear reasons, the price of GME began to rise significantly once again, and remained elevated throughout the remainder of 2021.

The sneeze of January 2021, also known as "the GameStop short squeeze," did not resolve into a clear victory for either side of the conflict.

While the reported short interest of GME did drop significantly from its highs of well over 100% down to around 20%, there continued to be a strong sentiment of skepticism against the company. There was no total capitulation by the short sellers like many GME investors were potentially hoping for.

Most of the retail investors of GME that were searching for a quick return on investment did not attain one, yet, they did not leave; many continued to hold on to their shares, and continued to investigate the peculiar nature of GME stock. Some believed, that despite the significant drop in short interest, that "shorts never closed." The suspicion was that, though some short sellers may have exited, there continued to exist significant short obligations that were being hidden in some form or another, and that the short sellers and complicit financial media were lying about it. There was a sentiment that this entire situation amounted to systemic fraud, involving, among other practices, naked short selling.

Around this time, the share price of GME was still very high relative to the actual financial performance of the company, which was saddled with debt and losing hundreds of millions of dollars per year.

In 2020, Ryan Cohen had become the largest shareholder of this weak company. He received seats on the board of directors of the company, and eventually was elected as chairman of the board in June 2021, and the entire board of directors was replaced. Under Cohen's direction, GameStop completed 2 at-the-market equity offerings, raising $1.7 billion for the company by selling shares at these elevated share prices. This influx of cash proved very helpful in stabilizing the financial standing of the company; GameStop paid off its debt, and used the remaining cash to generate interest income as well as fund the operations of the business. This significant amount of money could not have been raised so easily were it not for the preceding events that drove up the price of the stock.

While the company was able to raise cash and buy itself some time and avoid bankruptcy in the short term, it was still not in a great position. Revenue was continuing to decline, and the video game industry was increasingly moving away from physical sales that the company was dependent upon.

Despite the poor outlook for the company in 2021, many GME shareholders that invested prior to and during the sneeze continued to have strong conviction in GME as an investment. Based upon the belief that "shorts never closed," they believed that the events of January 2021 did not qualify as a proper short squeeze, and that inevitably a real short squeeze was still to come, something referred to as "MOASS," or, the "mother of all short squeezes." Many bullish investors believed it was inevitable and imminent, though it never happened. Despite this, and though the company had a poor outlook, many continued to hold on with the belief that it was inevitably going to happen for some reason or another.

For these beliefs, the retail GME investors were often derided and discredited by the mainstream financial media as well as on social media, for example in places such as r/gme_meltdown on Reddit. Retail GME shareholders have repeatedly been portrayed as conspiratorial, delusional, and cultish.

GameStop is often portrayed as a dying company with an outdated business model in a diminishing industry of physical video game sales. From this point of view, it would appear that there is no future where GameStop could be a successful business, and that bankruptcy is inevitable. GME is often portrayed as an invalid investment, that it is nothing more than a meme stock.

Retail GME investors — the apes — remained confident in their view, despite having not achieving their desired outcome. Hundreds of thousands of these investors were gathered on social media, mostly on Reddit at the time, in the r/superstonk subreddit, where they discussed the stock, discussed theories, discussed why they believed that shorts never closed, discussed the inevitability of MOASS, among many other things that connected to their view on GME.

Over the course of 2021, throughout the many discussions among these hundreds of thousands of investors, they eventually discovered DRS; they learned that holding shares in a brokerage account meant that they were not actually the owner and holder of real shares, but rather share entitlements, or "beneficially owned" shares. They learned that real shares are all accounted for in the books of the issuing company's transfer agent, and that the way that the stock market is set up is that the large majority of all these real shares are held by the central Wall Street financial institution Cede & Co., an entity of the DTCC. This arrangement effectively gives Wall Street a large opaque pool of fungible shares which are internally distributed at their discretion as share entitlements to all of the financial institutions, including stock brokers where retail investors can buy share entitlements.

The retail investors suspected that incumbent Wall Street institutions, using a variety of methods both legitimate and illegal, had fraudulently fabricated large quantities of GME share entitlements, far more than the number of actual real shares issued by GameStop. Since the DTCC's records of distributed share entitlements are not provided to the public, there is no way to confirm the actual number of share entitlements that have been distributed.

In their discussions on social media, they attempted to estimate how many shares (share entitlements) they collectively held by gathering data and conducting statistical analysis on that data. A sentiment emerged which concluded that the apes must have been holding more shares of GME than were ever issued by GameStop.

From this view, an idea emerged — the retail investors were going to "lock the float." They figured that they would prove the existence of the systemic fraud by directly registering all of the shares of GME that they could, and in doing so, eventually reveal that there were in fact far more share entitlements than real shares of GME issued by GameStop.

In the second half of 2021, GME investors began contacting their brokers and requesting their shares be directly registered, gaining full ownership and possession of their shares. On December 8, 2021, GameStop reported their Q3 2021 earnings results, reporting for the first time number of their shares of common stock were directly registered — 6.9%. Throughout 2022, these investors continued to discuss this DRS initiave and continued to register their shares.

Eventually, the momentum of directly registering shares began to slow down, and peaked at 25.2% in Q1, 2023. The percentage of shares of GME that were directly registered plateaued around 25% until 2024 when GameStop raised money by issuing shares.

Though it was an impressive effort with billions of dollars worth of GME shares directly registered by nearly 200 thousand individual investors, the initiative to lock the float did not succeed in its original objective, and thus the apes were unable to prove in this way the systemic fraud of GME that they suspected to exist.

Regardless, most of those shares that were directly registered have stayed directly registered. This shows that what started for many apes as something they thought would be an opportunity to get a quick return on investment during the period of time around the sneeze of January 2021, eventually transformed into long term direct holding of GME shares ever since. Even throughout all of 2022 and 2023, while GameStop was still losing money and the stock price of GME continued trending downward, the majority of these investors held on to their directly registered shares.

Upon replacing the board of directors and becoming chairman in 2021, Ryan Cohen was in the position to initiate a turnaround of GameStop.

Throughout the years of the turnaround, the financial media were consistently unfavorable towards GameStop, continuously portraying it as a dying company without a bright future.

Under Ryan Cohen's leadership, the company closed unprofitable stores, cut costs, raised cash, improved efficiencies, and modernized the business. It was not a quick process, and for the first two years the company continued to lose hundreds of millions of dollars per year.

After 3 years of turnaround efforts, GameStop reported full-year net profitability in their fiscal year 2023 results, their first profitable year in 6 years. While the net income was miniscule at only $6.7 million, it was positive, and showed clear evidence that the company was improving, despite the endless amounts of fear, uncertainty, and doubt that were put out by the critics. Most financial news that reported on GameStop's fiscal year 2023 results chose not to report about GameStop's positive net income at all.

Starting in 2024, GameStop began to pivot towards graded trading cards. This move has shown strong results thus far, and has made GameStop a more durable business, especially amidst the continued trend of video games moving from physical to digital sales.

In their fiscal year 2024 results, GameStop showed significantly improved earnings, and in their fiscal year 2025 results, GameStop reported their most profitable year in the history of the company, the highest stockholders' equity in the history of the company, and strong operational profitability for the first time in 8 years.

The results of fiscal year 2025 are clear: GameStop's turnaround has been a success, despite all of the skepticism.

Seeing that the company is now undeniably in a financially healthy position, in fact, stronger than it has ever been in its history, then objectively, it no longer makes sense to view GameStop as a dying business with a poor outlook, yet this sentiment is still commonly pushed by the critics.

GME bears win when their opponents, the bulls, give up on GameStop and capitulate and sell their shares of GME. In such a scenario, shareholders have lost faith in the outlook of the company, sell their shares, and the stock price plummets. As the price goes down, the value of the short position held by GME bears goes up. In the best case scenario for GME bears, GameStop goes bankrupt and the stock gets delisted.

GME bulls win when their opponents, the bears, give up on their GME short position and close out of it. Alternatively, GME bears could be forced to close their position via margin call, which would produce the same outcome. In order for a short position to be closed, the holder of that position must buy shares in order to return them to the party that they originally borrowed them from. In such a scenario, short sellers are buying back shares of GME, causing the price of GME to rise, thus increasing the value held by shareholders.

Oftentimes, GameStop is treated by the media with cynicism, negativity, and even plain dishonesty.

On rare occasion, however, media or media personalities acknowledge that there is actually more to GameStop than what is just superficially reported.

• "When asked about Gamestop i just say it is a controlled stock and not more than that. The haters know exactly what i mean"
  - Jim Cramer, July 6, 2022
• April 6, 2024: Reporting on GameStop's FY 2023 earnings, Reuters.com published an article titled: "GameStop saga ends. Winner: capital markets"
  In this article, the authors stated: "the beauty of a good trade is that there exists a winner and a loser; A thesis is tested, and one view will prevail. In this case, “shorts” were right. That leaves a lesson for those nursing dwindled bank accounts. The meme army may have lost, but perhaps next time will be clearer-eyed."