Emil Michael says the meme-stock phenomenon shows no signs of slowing down.
NerdWallet defines a meme stock as “a share of a company that quickly jumps in price due to the attention of a dedicated online following. Meme stocks usually gain popularity through discussion threads on community forum sites such as Reddit and social media platforms. The first successful meme stock was GameStop Corp (GME).”
According to Michael, in a way, meme stocks originally kicked off with Hertz. “If you remember what happened to Hertz a while back, everyone thought they were going to go bankrupt,” he says. “And then they raised money. It was a lot of small retail investors who held on, and that stock at 30 cents is now 6 bucks. So they made a lot of money. So this has continued along and I don't see how it stops if they keep making money.”
Now all eyes are on Reddit’s scrappy investors, according to CNBC’s TechCheck co-anchor Deirdre Bosa. Barron’s recently reported that Reddit traders and short sellers still have their sights set on GameStop.
In January 2021, GameStop stock was getting snapped up by retail traders on Reddit, Discord, and YouTube (News - Alert), according to qz.com. ABC7 in Los Angeles reports the surge in stock purchases came from young, primarily male, amateur day traders. Reddit’s WallStreetBets subreddit has been a meme-stock hub, according to The Wall Street Journal.
“I called it a distributed short squeeze, or you could even call it a crowdfunded short squeeze where in the old days you had a bunch of firms that were institutions that would sort of go and squeeze someone who was short in a stock, another institution,” Emil Michael explains. “Now you have this widely distributed set of individual investors who are pooling their money together using some of these social media platforms to push the meme out there. And then they're doing this squeeze.”
Emil Michael adds there might be institutions riding behind that because that would be smart money following a momentum trade. “So it's really all of the above,” he says. “But I don't think institutions would be doing this in the same way that the individuals that have been able to do that, because they're not on the social channels in the same way that the WallStreetBets crowd is.”
WallStreetBets: GameStop Gamechanger
However, according to TechCheck, that seems to be up for some debate, as Goldman Sachs says that small-lot trading declines prior to the peak in share price.
The implication, Goldman says, is that it's larger traders that are driving the price moves prior to and following the peak in the episodes analyzed. Emil Michael believes it's quite possible that the major players are better at this than one thinks.
“One could argue that it was invented by the WallStreetBets crowd, and then the institutions came in and saw an opportunity to make this phenomenon even more intense and they made more money on the side,” Emil Michael says. “But my understanding of yesterday in Clover Health, it was 500 some-odd million dollars lost by institutional short sellers as well.”
Although CNN reports that GameStop will soon take a dive in value, the company recently announced that its board passed a 4-for-1 stock split effective July 22. It caused the stock to jump more than 8% on the heels of the announcement.
The Motley Fool reveals that soon after that move, the fabled electronics and gaming retailer axed its CFO, Michael Recupero, and announced it would lay off an undisclosed number of employees.
Despite GameStop’s ongoing corporate challenges, The U.S. House Committee on Financial Services issued a press release in late June highlighting the meme-stock frenzy and how it led to volatility in the stock market.
“My committee’s investigation into the matter showed we need better market regulation to address the troubling business practices that were uncovered during our investigation,” Congresswoman Maxine Waters, the chairwoman of the Committee on Financial Services, said in the press statement. “The report makes clear that significant legislative and regulatory reforms are needed to modernize the regulatory framework for protecting the market and ensuring that the events on Jan. 28, 2021, do not happen again.” That date will go down in GameStop’s history as the day its stock soared to $483 per share — a 1,700% increase — sending its market value from $2 billion to $24 billion in mere days.
Emil Michael Takes a Bite (News - Alert) Out of ByteDance
TikTok owner ByteDance has also been in the headlines lately with whispers about a new social media app launch. President Joe Biden is rumored to be signing an executive order targeting personal data collection by Chinese apps, which would include TikTok. Last month, The New York Times reported that the Biden administration is taking a more relaxed approach to the issue. Biden also revoked the Trump administration ban on the apps. Emil Michael is an investor in ByteDance, a tech platform available in more than 150 markets and 75 languages.
“Well, I also heard that they're not shutting TikTok down, which was the great fear, I think, for the ByteDance parent company, that the TikTok app was going to get shut down in the U.S. unless they spun it off and it was bought by Walmart and this group and Oracle (News - Alert) [Corporation] and these companies that got together,” Emil Michael says. “I think that if it's a data collection thing, that could be worked around, probably. You could store data locally in the U.S. and maybe not commingle it with the Chinese data or other data that they have, which might make it more palatable to the U.S. government from a security standpoint.”
Regarding security concerns, Emil Michael says, “We have to be able to trust it in some way or we're going to walk into a balkanized internet.” The tech leader recalls when Uber was making sure its app wasn’t banned in China.
“We got kicked off the WeChat platform and so on,” Emil Michael says. “So it has been a one-way street. So I do think it's a little more balanced that the Biden administration is trying to add, but they're trying to do it maybe in a more surgical way: making it about the data, not about the banning of apps completely. Google cannot be used in China. Facebook (News - Alert) cannot be used in China. But if TikTok can be used in the U.S., but the data's segregated, maybe that's the better answer.”
