GameStop reported financial earnings on Wednesday, December 7, 2022. After GameStop reported better-than-expected fiscal fourth-quarter results, meme stocks are rising before the market opens on March 22, 2023. AP Photo John Minchillo, File ASSOCIATED PRESS Meme stocks are rising before the opening bell Wednesday after GameStop, one of the most heavily traded off-brand stocks during the Pandemic, posted a surprise profit for the fourth quarter.
The video game retailer reported a loss of 16 cents per share rather than the 16 cents per share, or $48.2 million in all, rather than a per-share loss of 16 cents as Wall Street had expected.
GameStop's revenue fell and much of the profit gained came from aggressive cost cutting, including store closures and layoffs. Fundamentals that normally drive stock movement seem to be being pushed aside, as was the case during the Pandemic.
Shares of GameStop Corp. Grapevine, Texas, surged 47% in premarket trading and pulled other meme stocks along for the ride.
GameStop was a member of a group of beat-down stocks that attracted smaller investors in huge numbers during the pandemic. The theory was that if enough small investors got in the game and drove the stock higher, it would force large hedge funds with short positions bets that the stock would fall to capitulate and sell those positions at a huge loss.
It worked. GameStop's stock increased from 65 cents in April 2020, near the start of the epidemic, to more than $120 by January 2021. Similar tactics drove the stock of struggling movie chain AMC 15 times higher during the same period, and that dynamic seems to be driving the stocks of GameStop, AMC, and other so-called meme stocks in early trading Wednesday.
According to S 3 Partners last week, Citron Research, Melvin Capital and other big hedge funds lost $5 billion on the other side of the trade in 2021, according to analytics firm S 3 Partners.
Shares of AMC Entertainment Holdings Inc. increased by 9%. Bed Bath Beyond Inc.'s stock went up more than 11% and Virgin Galactic Holdings Inc. rose more than 3%. Also, both Nokia and Palantir saw increases in meme stocks.
GameStop CEO Matthew Furlong said during a post-earnings conference call late Tuesday that inflation, rising interest rates and material macro headwinds forced cost cuts, and that efforts will continue this year.
Furlong said that we're going to pursue further cost containment, efficiency, profitability and pragmatic growth in the categories where we can consistently delight our customers.
Shares of GameStop are down 4% this year.