🔬Meme Stocks & Why It's Different This Time For GameStop

Plus: OJ is in the news (no, not that one); Squarespace goes private; and much more!

"When there is a crisis, that’s when some are interested in getting out and that’s when we are interested in getting in."
- Carlos Slim

"I like to picture Jesus in a tuxedo t-shirt because it says, like, 'I wanna be formal, but I'm here to party, too.'"
- Cal Naughton Jr. (Talladega Nights)

• Mixed day for the big US markets with the S&P 500 -0.02% while the Nasdaq was +0.3%. Meme stocks ruled the day (more on this below).

• 2 of 11 sectors closed higher (Tech +0.5% and Real Estate +0.3%). Industrials (-0.5%) and Financials (-0.4%) were at the bottom.

• Quiet day in the markets as the catalyst vacuum continues now that earnings season has wrapped up, and we await more econ data to surmise the market’s fate.

• Notable companies:

  • GameStop (GME) [+74.4%]: Shares up with movement linked to Roaring Kitty/DeepF******Value’s first online post since 2021. No direct reference to GME noted.

  • Arm Holdings (ARM) [+7.7%]: Nikkei reports it plans to debut AI products next year with a prototype by spring 2025.

  • Intel (INTC) [+2.2%]: Advanced discussions reported for over $11B from Apollo to fund a new plant in Ireland.

Street Stories

GameStonk Is Back!

One of the greatest moments in the history of the stock market was the GameStop short squeeze of 2021 when a group of retail traders armed with memes and call options took on the likes of Wall Street royalty. I loved every minute of it; was sad when it was over; and really hoped that GME 0.00%↑ would be able to turn around the business and prove the shorts wrong.

Unfortunately, that didn’t really happen.

While GME had an incredible run in the meme stock era, shares hit a fresh 4 year low on April 22nd at a messy $10 a share - 88% off it’s squeeze peak of a split-adjusted ~$87 a share in 2021.

So what gives? Did the business turn itself around? Did it finally leverage that good will and brand into online sales? Did they come up with a big strategic shift that will power them triumphantly into the future?

Nope, Roaring Kitty just tweeted for the first time in 4 years.

The champion of the retail investor appears to have come out of self appointed exile after years, and the meme stock gang are interpreting this as another great squeeze moment - although I’m not too sure how well things will go this time.

Lemme explain…

For starters, a big part of the original short squeeze was that so many shares in GME had been sold short, making it difficult for short sellers to unwind their positions, and causing a massive run up in shares as hedge funds scrambled against margin calls.

This time, however, the short interest in GME is significantly lower. At its peak in 2021, short interest represented nearly 140% of all shares outstanding (yes, it’s technically possible). This time around it’s only around 24% of shares.

Next, much of the hype was based on GameStop being a great turnaround story. The company was going to pivot to online and make a whole slew of changes that would reignite the growth story.

However, as you can see above, sales have struggled to recover and there hasn’t been much of a growth story for investors to get excited about.

Note: Like many retailers GameStop is particularly profitable in the fourth quarter due to the holiday gift buying season.

Moreover, the death spiral of quarterly losses has abated as the company was able to right-size the business and enact many cost cutting measures.

However, the company has only managed two profitable quarters since the short squeeze and the Street doesn’t see them making much progress in the coming years.

Ryan’s Thoughts - I love the GME story and there is certainly some nostalgia kicking in, but things will likely play out differently this time, as the odds of an honest to goodness short squeeze is dubious.

Now that Bitcoin hype has waned, there is a speculated excess of retail money around to fuel this thing even further but the ‘Us vs. Wall Street’ narrative is gone.

Lastly, the fundamentals of the business are ‘ok’ and this rally will likely have no impact on the strategic direction of the company, unlike last time with investor Ryan Cohen advocating significant change: he’s not a feisty outsider anymore, he is literally the CEO now.

Unlike last time, when Wall Street took it on the chin, I have a distinct worry that the people getting hurt this time are the retail investors that bought in too late or got stuck holding the bag. I really hope I’m wrong.

Orange Is The New Brown

Sorry, that sounds terrible.

Anyway, orange juice futures are up +26% this year after after record gains in 2023 (+55%) and 2022 (+41%). A citrus disease and bad weather are blamed for production short falls but I’m sure speculators have had a hand in it too. Brazil has a 75% share of the global orange juice trade, while Florida, which provides most of the US’s orange juice, has had hurricane damage hindering its output.

The situation is reminiscent of the Cocoa situation, which has slowly started to abate, after Ivory and Ghana experienced weather induced crop failure.

….ugh, chocolate was the ‘brown’ in the title, in case that wasn’t super clear.

Meme Stock Frenzy?

With GameStop all over the media, one has to ask the question: Are meme stocks back? Well, they just might be. Some of them at least.

Fund manager Roundhill ran a cool ETF focused on meme stocks, literally called ‘MEME ETF’, but unfortunately that shut down towards the end of last year. However, looking at their last set of holdings there are definitely some winners over the last few days. Excluding GameStop, the average company is up 5.4% since Friday, while the S&P 500 is flat.

Joke Of The Day

I told my doctor that I broke my arm in two places – he told me to stop going to those places.

Hot Headlines

Reuters / Anglo American rejects BHP's revised $42.7 billion buyout proposal. The company passed on the proposed metal mega merger, after BHP upped its April offer of a $39 billion all-share deal.

Fun fact: In my investment banker days, I spent months working on pitches to Anglo American. They passed on every single one of them too. 🫠

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Tech Crunch / Private Equity shop Permira is taking Squarespace private in a $6.9 billion deal. Another pandemic era IPO that struggled to find an investor base.

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NY Times / Democrats hold leads in 4 crucial races that could decide Senate control.

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Daily Beast / Lululemon scion JJ Wilson plots to make psychedelic drugs the new yoga. Chip Wilson’s son has visions of turning his legal drugs business into a tripped-out version of Lululemon’s global yoga apparel empire. I knew that family must be on drugs, but talk about steering into the skid.

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Futurism / Meet AdVon, the AI-powered content monster infecting the media industry. Deep-dive in the seedy world of fake content and reviews that the media industry is using to get clicks. And I thought all AI was benevolent?

Trivia

Today’s trivia is on GameStop.

1. When was GameStop founded?
   A) 1965
   B) 1990
   C) 1984
   D) 2000

2. GameStop's rapid expansion in the 2000s was primarily due to the acquisition of which competitor?
   A) Circuit City
   B) Electronics Boutique (EB Games)
   C) RadioShack
   D) CompUSA

3. How many stores did GameStop operate worldwide at its peak around 2017
   A) Approximately 5,000
   B) Approximately 7,200
   C) Approximately 18,000
   D) Approximately 2,500

4. DeepF******Value and Roaring Kitty were online pseudonyms of this individual, famed for kicking off the GameStop short-squeeze in 2021. He was portrayed by Paul Dano in the 2023 film ‘Dumb Money’.
   A) Ryan Cohen
   B) Steve Michelson
   C) Andrew Winters
   D) Keith Gill
   

(answers at bottom)

Market Movers

Winners!

• GameStop (GME) [+74.4%]: Shares up with movement linked to "Roaring Kitty" Keith Gill's online post since 2021. No direct reference to GME noted.

• Squarespace (SQSP) [+13.3%]: Set to go private by Permira with a ~$6.9B EV; $44/share price is about a 15% premium; deal expected to close by Q4'24.

• Tencent Music Entertainment Group (TME) [+10.9%]: Q1 earnings and revenue exceeded expectations. Online music growth offsets declining social entertainment revenue.

• Incyte (INCY) [+8.6%]: Plans to repurchase up to $2.0B in common stock announced.

• Arm Holdings (ARM) [+7.7%]: Nikkei reports it plans to debut AI products next year with a prototype by spring 2025.

• Walgreens Boots Alliance (WBA) [+5.4%]: Early talks with potential buyers for Boots drug chain reported by Bloomberg.

• Intel (INTC) [+2.2%]: Advanced discussions reported for over $11B from APO to fund a new plant in Ireland.

• Tesla (TSLA) [+2.0%]: Offering 0.99% financing for Model Y vehicles ordered by May 31. Reports of nearly completed lower-priced Model 2 before project was reportedly canceled.

• Apple (AAPL) [+1.8%]: Near deal to integrate OpenAI's ChatGPT in iOS 18, with AI updates expected at the upcoming June WWDC.

Losers!

• Fortrea Holdings (FTRE) [-14.9%]: Q1 EPS and revenue fell short; FY24 forecasts below consensus. Challenges noted from 2023 spin-out, including reduced clinical sales and high infrastructure costs.

• Chimera Investment (CIM) [-5.4%]: Announced a 1-for-3 reverse stock split effective post-close on May 21.

• Duolingo (DUOL) [-3.8%]: Shares saw a modest decline during today's OpenAI Spring event featuring ChatGPT.

Market Update

Trivia Answers

1. C) GameStop was founded in 1984.

2. B) Electronics Boutique (EB Games) in 2005.

3. B) GameStop had approximately 7,200 locations at its peak.

4. D) Keith Gill is the legendary DFV/Roaring Kitty. 🫡
   

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