Billionaire investor Carl Icahn is betting against GameStop stock

(Bloomberg) – Billionaire investor Carl Icahn started GameStop Corp. to short during the height of the meme-stock frenzy circa January 2021 and still holds a large position in the video game store, according to people familiar with the matter.

Most read from Bloomberg

Icahn began building the short as GameStop traded near its $483 per share high and still has a big bet against the retailer’s stock, the people said, asking not to be identified because the case is private. The investor, who has increased his position from time to time, is betting that GameStop’s stock will not trade on its fundamentals and will continue to fall, the people said.

The size of his position is not clear.

GameStop fell 8.8% on Monday to close at $25.16, giving the retailer a market value of $7.7 billion. The retailer executed a four-for-one stock split this year, losing 71% of its value from its January 2021 high.

Representatives for Icahn and GameStop declined to comment.

The early reaction to Icahn’s short on social media was relatively subdued. News of the bet was shared on Reddit in at least two threads, including on the popular WallStreetBets forum, with more than 250 comments as of 9:54 a.m. in Singapore. That pales in comparison to the thousands of responses to GameStop posts during the height of the meme mania.

The stock was not trending on social media platforms like it was in early September, when news broke of its partnership with Sam Bankman-Fried’s now-bankrupt FTX US cryptocurrency exchange.

GameStop became a poster child for so-called meme stocks as retail boomed during the coronavirus pandemic, aided by free trading apps and tax incentives. Individual investors, encouraging each other on Reddit forums, poured money into GameStop in an effort to burn money managers who bet against the retailer.

Known as a short squeeze, the effort led several investors who had similar shorts to feel the squeeze. That included Melvin Capital, Gabe Plotkin’s hedge fund, which in May said it was closing because of heavy losses on its bet against GameStop.

Short bets

It marks a rare example of Icahn betting against meme stocks. Although the legendary investor has taken significant short positions elsewhere, including a bet on the demise of malls via derivatives known as CMBX.

More than a fifth of GameStop’s shares available to trade are currently being sold short, according to data compiled by S3 Partners, more than double the level last year this time around. That compares to a spike of over 140% in January 2021, when retail flooded chat rooms on Stocktwits, using memes and GIFs to pump bets on forums like Reddit’s WallStreetBets.

That mania spawned parabolic stock rallies despite gamers opting to download new titles rather than visit stores, at one point saddling the retailer with more than $1 billion in debt and lease obligations. Since the craze, the company has been able to sell millions of shares on the open market, nearly wiping out its debt.

A large portion of investors discussing their views on social media platforms cite Ryan Cohen, the company’s chairman and largest investor and founder of pet store Chewy Inc., as the main driver of their investment.

–With help from Abhishek Vishnoi.

(Adds retailers’ social media reaction to Icahn’s position)

Most read from Bloomberg Businessweek

©2022 Bloomberg LP

Leave a Reply

Your email address will not be published. Required fields are marked *