Here are a few things you should know about Keith Gill.
He goes by the name Roaring Kitty in his YouTube videos. He grew up in Boston playing video games on consoles he bought at GameStop. After graduating from a small local college, Stonehill, he worked for an office supply company, tried to launch an investment software firm, and worked in marketing for the retail investment arm of Mass Mutual.
While rumors were floating around on Wall Street that GameStop might go bankrupt, Gill genuinely believed the struggling retailer could reinvent itself. In 2019, he began purchasing more than $50,000 in call options on the stock, betting the price would go higher. Betting against Wall Street. Betting against short sellers, who were betting that GameStop would fail.
Oh, and Gill pocketed about $48 million trading on his convictions.
"I like the stock," Gill would tell Congress later.
GameStop is in the business of selling video games loaded onto disks and played on consoles. But in 2013, with the launch of Xbox One and the PlayStation 4, that business was struggling. The intervals for releasing the new, must-have consoles were stretching out, the market for vintage games resold in GameStop stores seemed to be slowing, and online game makers were looking to cut brick-and-mortar retail out of the loop.
Still, even though the digital gaming business had steadily been moving online, GameStop between 2013 and 2019 had actually managed to increase its customer base -- people who self-identified as GameStop customers -- by about 30 percent. Vintage video games apparently still held an allure for millions of gamers, many of whom had grown up with GameStop, still held loyalty cards, and were now in the working world, with disposable incomes in their pockets and enough time on their hands to play some Donkey Kong or Mario Cart now and then.
Looking across a competitive landscape that was shifting to online sales, GameStop CEO George Sherman decided it was time for a reboot. Meeting with investors, Sherman in June 2019 outlined a plan to revive GameStop by slashing overhead, selling off its inventory of used video games, and identifying new revenue streams in the rapidly evolving gaming marketplace. Dozens of regional store managers were laid off, and the company began closing hundreds of stores, many mainstays in urban and suburban neighborhoods.
The strategy backfired. The launch of the Reboot campaign -- and the store closings -- corresponded to a rapid erosion in GameStop's customer base. Online shopping was already challenging the convenience of dropping by a neighborhood GameStop store. Every time GameStop consolidated a neighborhood store with another store several miles away, the company accelerated its own customer attrition.
By early 2020, the number of U.S. consumers who would self-identify as GameStop customers had dropped back to 2013 levels.
And then the coronavirus hit. In March 2020, with social lockdowns in place to battle the contagion, the remaining GameStop retail stores nationwide were closed, used only for curbside pick up. In short order, with prospects for the corporate reboot looking bleak, GameStop's GME shares were relegated to the penny stock bin, trading under $5 a share.
While retail customers were abandoning GameStop, retail investors had not completely given up on GME. Roaring Kitty, posting on subreddit WallStreetBets as DeepF*****gValue, was constantly revising an investment thesis supporting his call options. At the same time, fellow WallStreetBets member Stonksflyingup posted a prophetic video about institutional investors betting against GameStop. There were more short positions -- basically, bets a stock will lose value -- than there were GameStop shares. Stonksflyingup showed how an increase in GameStop share price could trigger the Wall Street equivalent of a nuclear reaction, effectively blowing up hedge funds that would incur billions of losses trying to cover their positions.
A month earlier, as it happens, GameStop had posted a 13-D filing with the Securities and Exchange Commission disclosing that investor Ryan Cohen had amassed a nearly 10% stake in the company. The news had in fact breathed new life into GameStop shares, which surged 28% on expectations that Cohen, the founder of Chewy.com and a longtime Apple investor, would somehow turn GameStop into an Amazon competitor.
At the time, GameStop was on track to ultimately post a $215 million net loss for the fiscal year, with sales down more than 27%. Still, investors posting to the r/wallstreetbets subreddit were tracking GameStop closely, watching for any sign that Cohen planned to take an active role in turning the company around. The news broke on January 11th.
"GameStop Announces Additional Board Refreshment to Accelerate Transformation," the company announced. Board refreshment? What does that mean? WallStreetBets subreddit users knew immediately. GameStop, under pressure to energize its reboot, had agreed to give Cohen and two former Chewy executives seats on the company's board of directors.
The news triggered a rally in GME's stock price led by retail investors who not only believed in the GameStop model, but seized an opportunity to stick it to institutional investors who were betting against the company. The surging stock prices forced institutional investors who had sold GME short -- borrowing shares they expected to sell later when the stock price had dropped -- to instead buy shares to cut their losses. The nuclear reaction predicted by Stonksflyingup detonated.
A group of retail investors had activated the social media to coordinate a response -- in this case, executing a short squeeze targeting institutional investors. GME shares rose 600% at one point, with one hedge fund booking $700 million in investment gains, and another forced to line up a capital infusion to protect $8 billion in assets.
The aftershocks from the GameStop trading volatility reached all the way to Capitol Hill. During subsequent Congressional hearings, legislators questioned whether WallStreetBets posts amounted to a "pump and dump" scheme to artificially -- and illegally -- drive GME's stock price higher and reap the profits. They found no evidence of that. The legislators also looked for signs of naked shorts -- short sales that were not backed by borrowed shares. Again, nothing.
In the aftermath of the GameStop short squeeze, Congressional legislators and securities regulators were left to consider the role that online trading firm Robinhood and social media platform Reddit played. Robinhood, which at the time was preparing to launch its own initial public offering, was criticized for gamification of its online trading app, which used digital confetti, colorful graphics and gaming features like taps to stimulate online stock sales. Reddit, meanwhile, defended its subreddit community and its place on Wall Street.
"To conclude, I would like to reiterate why it is important to protect online communities like WallStreetBets. WallStreetBets may look sophomoric or chaotic from the outside, but the fact that we are here today means they’ve managed to raise important issues about fairness and opportunity in our financial system. I’m proud they used Reddit to do so."
-- Reddit co-founder and CEO Steve Huffman
While securities regulators launched an investigation into the meme-stock craze, that didn't keep GameStop and other companies from cashing in. The meme stocks, companies like GameStop, Blackberry and Bed Bath and Beyond, all experienced surging stock prices in early 2021. For its part, GameStop capitalized on the surging stock price, announcing plans to sell an additional 3.5 million shares and retire long-term debt.
Theater owner AMC Entertainment Holdings also found a way into the act, offering free popcorn to retail investors who owned its stock. A penny stock trading below $5 a share before the January meme-stock rally, AMC's offer -- labelled a "communication initiative" in a corporate press release -- pushed its stock price above $62 a share in June.
And where was GameStop PR as all of this was playing out? Largely on the sidelines. The national financial press routinely reached out to company spokespeople for perspectives on the volatility in GME shares. Under securities rules governing corporate disclosures of material financial information, the company for the most part was forced to decline comment.
Behind the scenes, GameStop was rebooting its PR team at the same time the company was announcing a series of executive changes. The "board refreshment" press release was issued by investor relations with two Edelman PR contacts listed as press contacts. A month later, GameStop had displaced Edelman with an outside investor relations firm, Profile Advisors. For a couple of months, two of the new firm's principals were listed as media contacts, along with a longtime GameStop spokesperson, in company press releases announcing executive changes and formation of a strategic committee led by Cohen. By June, GameStop press releases only carried the names of the outside PR counsel.
So far this year, GameStop press releases have exclusively targeted investors as the company rebooted its executive team and posted quarterly earnings reports. Heading into the holiday shopping season -- and especially as Black Friday approaches -- the publicity mix will shift like the changing of the seasons.
One more chart. This one shows Google Trends data tracking online searches on the keyword "GameStop" from 2010 through the end of last year. In Google Trends, the highest search volume equals 100. For GameStop, the highest online search volume occurred in November 2011. Search volume for every other period is shown as a percentage of the highest period. That's called indexing.
Notice a pattern in the GameStop data? It looks a bit like an EKG, with a heartbeat every November-December. Holiday shopping. That's when consumers engage in GameStop, and PR engages with the media. If the typical pattern holds, GameStop will prime the shopping pump with a pre-order offer in late September, play into the gift guide news cycle in mid-October, promote Black Friday specials in mid-November, and publicize Cyber Monday deals over the Thanksgiving weekend.
This year, along with the critical decisions about how it publicizes its products during the 2021 holiday shopping season, the financial press is primed for news about how the company will redefine its brand with customers and maintain a lofty stock price valuation with investors.
Main Street will start shopping. Wall Street will be watching.
Let's talk about this in class.
If you were managing GameStop PR,
what would your communication strategy focus on
for the remainder of 2024?
Think tactically and strategically.
Post in the comment section below,
and come to class prepared to discuss your proposal.