📈 Updates on GameStop


February 1, 2021

PLUS: A startup for cancer patients and caregivers.

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Look, we know you’re here to read about one thing today: It starts with the letter “g” and rhymes with “namestop.” We’ve got you covered.

The Big Idea
Robinhood gif

The latest GameStop news, explained

If you’ve somehow never heard of GameStop, start here.

When we last spoke to the rest of you readers, the big news involved Robinhood: The widely used retail trading app came under fire for its decision to restrict trading in popular Reddit stocks (e.g., $GME, $AMC).

Here are the latest updates (as of Sunday night):

Robinhood’s decision was grounded in market mechanics

As explained by Bloomberg’s indispensable Matt Levine, the stock market operates on a “T+2 settlement” model. What this means is that when you buy a stock, you receive the shares immediately but don’t actually pay for them until 2 business days later.

The credit risk over this 48-hour window falls on the stock seller, and the way the market deals with it is through clearinghouses — intermediaries between buyers and sellers that guarantee the trades.

$GME’s volatility concerned the clearinghouses, and they forced brokerages to put up more collateral and slow the trades in popular names. It wasn’t just Robinhood that restricted trading — so did Interactive Brokers, E*TRADE, TD Ameritrade, and Charles Schwab.

Robinhood raised an emergency $1B from investors…

… to help deal with the higher collateral requirements (a 10x increase). To be sure, Robinhood is far from blameless:

  • Its business model easily allows risky investing behaviour, including options trading and investing on margin
  • Its platform has seized up before under heavy trading and should have better guardrails in place

Further, its poor messaging led to hundreds of thousands of negative reviews and lawsuits. (The Above The Law blog notes Robinhood’s agreement with users means these suits will probably get thrown out.)

The ‘Reddit traders vs. hedge funds’ framing is too simplistic

There is big institutional money on both sides of the bet, as highlighted by Ranjan Roy, writing at Margins.

To wit: During the Robinhood trading pause, someone bought $187m of $GME (clearly, not random teens in their basements).

Retail traders also have been on both sides of the bet. Bloomberg’s Levine cites data from market maker Citadel that “retail investors were net buyers of [$GME] on Monday but net sellers” through Thursday.

There will def be more news to come this week, so keep an eye on this space.

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Snippets
  • Speaking of Robinhood, the app will limit buying of $GME to one stock (and 5 options contracts) on Monday. Other restricted stocks are AMC, BlackBerry, Koss, Express, Nokia, Genius Brands and Naked Brand.
  • ZuckStack? In a kinda weird “what if Facebook copies us” moment, the social media giant is building newsletter tools. This news comes shortly after Twitter acquired newsletter firm Revue.
  • Amazon’s Ring network lets law enforcement ask owners of Ring products to share video footage for investigations. 2k+ police and fire departments have partnered with them (in every state, except Wyoming and Montana).
  • Amazon Union? Amazon warehouse employees in Alabama will cast mail-in ballots over the next 2 months on whether to unionize. The outcome could really shake up the ecomm industry.
  • Subsidize this: SpaceX is on the cusp of securing ~$1B in government subsidies for its Starlink program, which provides internet via satellites. Services like this are key to the Biden administration’s rural broadband initiative.
  • Disney+ is blowing up in India. In fact, India and Indonesia account for 1/3rd of the streaming services subscribers. What’s driving subs on the subcontinent (sorry): cricket.
  • The world’s biggest digital bank…is in Brazil. After raising $400m, Sao Paola-based Nubank is now worth $25B. Impressively, its customer base has grown from 12m in 2019 to 34m in 2021.
$GME
GameStop characters

GameStop CEO George Sherman, Keith Gill (AKA Roaring Kitty), and Ryan Cohen

GameStop: The CEO, the Redditor, and the billionaire backer

Here are 3 mini-profiles of notable individuals who will certainly feature in the inevitable GameStop movie:

George Sherman, GameStop CEO

In April 2019, George Sherman left Victra — an exclusive Verizon Wireless reseller — to take the top job at GameSpot. Sherman is a retail veteran with leadership stints at Advance Auto Parts, Best Buy, Home Depot, and Target.

According to Fortune, Sherman received a relatively low CEO salary to join ($1m a year) but was awarded 2m+ in share grants and options. Those shares were initially valued at $10.5m but — as of Friday — were worth $900m+.

Due to share restrictions and vesting schedules, Sherman is probably not able to unload much of that paper wealth.

Keith Gill, the Redditor leading the charge

Known on r/WallStreetBets as u/DeepF******Value (and on his YouTube financial channel as Roaring Kitty), Keith Gill is the man who started the $GME craze, per Reuters.

The 34-year old Gill lives in Boston and formerly worked at insurance firm MassMutual as a financial advisor. He made his initial $53k bet on $GME in September 2019, and the position is now worth ~$48m.

The SEC is looking into whether laws were broken over the course of Gill’s work. Securities attorneys tell Reuters that “if Gill simply invested in and advocated for his position because he believed in the company, that he had nothing to fear.”

Ryan Cohen, the billionaire founder of Chewy

In 2017, Ryan Cohen sold his pet startup Chewy to PetSmart for $3.4B. He famously invested much of his wealth in Apple and Wells Fargo.

Cohen made a much different bet in August 2020, when he opened a position in $GME, believing his ecommerce expertise could turn around the ailing video game retailer.

He owns 12.9% of the company from a total $76m investment. As of Friday evening, that stake is worth $2.9B.

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Q&A
Liya Shuster-Bier headshot

Liya Shuster-Bier battled cancer. Now, she’s building a platform to make cancer ‘less lonely.’

On January 11, 2018, at 29-years-old, Liya Shuster-Bier was diagnosed with a rare form of cancer. The news came as she was caring for her mother, who, just months earlier, had undergone a double mastectomy.

Three years to the date of her cancerversary (from which she is now in remission), Shuster-Bier launched Alula — a platform that helps patients, survivors, families, and friends deal with the entire life cycle of cancer.

With $2.2m, the startup’s mission is to make cancer “less lonely.” The Hustle recently spoke with the impact-investor-turned-entrepreneur to find out more:

What is the backstory for Alula?

[While battling cancer], I noticed that we build technology to honor the most important days in our lives, like a wedding or becoming a parent.

But we don’t have the same technology to galvanize us on the hardest days of our lives. This is what Alula is meant to provide.

How does Alula work?

Alula provides tools to help with:

  • Communication: [Telling people about the diagnosis is very hard], so we’ve created customizable templates and guides to help.
  • Coordination for family and friends who want to help (they can use shareable calendars).
  • Curated products from cancer patients (and guided by Alula’s advisory board of medical experts) on the website’s marketplace.
  • Cancer-related content that is centralized into one knowledge hub.

We currently receive affiliate revenue from the products we curate, but — by the spring — will be buying certain products wholesale and selling through our website.

Will Alula focus only on cancer?

There are 17m patients diagnosed with cancer a year. If you take the immediate family of ~5 people, that’s 85m people affected and doesn’t even take into consideration friends.

We’ve certainly discussed other health crises, but addressing cancer is the priority.

(Read the full Q&A here)

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GameStop links of the day

Not every hero wears a cape. (Source: Reddit)

Here are some more GameStop-related links:

  • A r/WallStreetBets trader used $GME “tendies” (AKA profits) to buy Nintendo Switches for a local children’s hospital.
  • A 10-year-old was gifted $60 in $GME stock, now worth $3k+.
  • Citron Research — one of the prominent $GME short-selling hedge funds — will “halt 20 years of short-sell analysis” after getting blown up by r/WallStreetBets.
  • Billionaire hedge fund manager Steve Cohen — who owns the NY Mets and backed funds shorting $GME — left Twitter following threats directed at his family.
  • Melvin Capital — one of the hedge funds backed by Cohen — lost 53% in January.

The Twitter account for the World Wide Robin Hood Society (based in the heart of Sherwood, Nottingham, England) was widely mistaken to be the Robinhood trading app. They had some fun with it:

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