Prior to 2021, GameStop, the beleaguered video game retailer, seemed like a strange choice for a documentary. Its story was similar to other businesses, like RadioShack, that saw declining profits due to changing market conditions.
The shift from physical to digital editions of games hit the company hard. Digital storefronts like Steam and Origin grew in popularity for PC games. Meanwhile, PlayStation Network and Xbox Live meant that even console games were available as downloads.Â
The company’s stock began plummeting in 2016, and things got worse from there. In 2018 alone, GameStop lost nearly $700 million. They shut down hundreds of stores to stop the bleeding.
The GameStop story changed in early 2021 when its stock soared from five dollars to hundreds of dollars per share. It’s this meteoric rise — and the reason behind it — that Hulu focuses on in its documentary, “GameStopped.”
The documentary covers GameStop’s rise and fall, then shifts into details on how Wall Street investors were making money off short selling GameStop stocks.
This means that hedge funds were borrowing shares of the stock, selling them off, then buying at a lower price before returning the stocks to the lender. They make a profit by betting that the price will drop.
If an investor borrowed 100 shares of stock for five dollars each, then sold it, that would be $500. The investor would then wait for the price to drop below five dollars, and buy it at the lower price.
If the stock dropped from five dollars to two, the investor would buy it back for $200. The difference between what they paid ($200) and what they made from the sale ($500) is their profit ($300).Â
A group of Redditors who follow the stock market saw this happening and decided to take action by creating a “short squeeze.” The Redditors began buying the stock en masse, causing its value to rise.
As more people began joining in, GameStop’s stock value soared to almost $400. This caused massive financial losses to hedge funds and short-sellers.
The spike in value was so unprecedented that trading was paused several times. Then the story got even wilder when Robinhood, the popular investing app, froze GameStop trades.
On January 28, Robinhood announced that it would no longer allow uses to purchase stock from GameStop and several other companies they cited as “volatile.” This lead to a massive outcry from Robinhood users as well as U.S. lawmakers.
Robinhood claimed that it had no choice because of requirements tied to how much operating capital they had. That hasn’t stopped the criticism from lawmakers like Ted Cruz and Alexandria Ocasio-Cortez, both of whom called for hearings on Robinhood’s actions.
The app is also facing a lawsuit and increased scrutiny from the SEC…not to mention major ill will from Redditors.
