When struggling retailer Bed Bath & Beyond announced last week that it was unsure it was going to be able to stay in business, and followed that news with a grim earnings report on Tuesday, it felt like the proverbial nail in the coffin of one of the strangest, and most pointless, bubbles in market history: meme-stock mania.
Along with other floundering companies, including AMC, BlackBerry, and ur-meme stock GameStop, Bed Bath & Beyond saw its stock price soar to improbable heights in 2021 when it became a darling of retail traders on the subreddit WallStreetBets. Then, after falling back to Earth, BBBY’s stock saw another huge surge in the summer of 2022, sextupling in a matter of weeks, even though all the news about the company’s actual business was terrible. But in the months since, reality has caught up—and the stock is now down 90% from its summer peak, and 94% from its all-time high.
Other meme stocks have followed similar trajectories. AMC and BlackBerry are both down more than 90% from their all-time highs, and even GameStop—the meme stock that’s held up best—is off 85% since early 2021. People who bought early and got out at the right time made a lot of money. But as in any bubble, people who got caught up in the hysteria and bought these stocks, imagining they were “going to the moon” (as meme-stock traders were fond of saying), got crushed.
That was not a surprising outcome—it was a predictable one. In fact, the only surprising thing about the meme-stock bubble is that it happened at all. Historically, stock-market bubbles have tended to be responses to technological or social change, with investors succumbing to hype around new technologies or new trends and becoming convinced that they’ll change everything. The most obvious example of this is the internet bubble of the late ‘90s, when simply having a dot-com at the end of your company name was enough to send your stock soaring. But the same was true of so-called story-stock bubbles in the past, like the uranium-stock bubble of the late 1950s, or the bowling-stock bubble of the early ‘60s, which happened when investors became convinced that bowling was going to become the favorite American pastime.
The meme-stock bubble, by contrast, was not inflated by hype about the future. On the contrary, the companies involved were, for the most part, struggling companies in legacy businesses, with no obvious prospects for dramatically improving their businesses. All that meme-stock companies really had in common was their stocks were cheap and they were heavily shorted (which created the conditions for meme-stock traders to potentially engineer massive short squeezes, sending their stock prices higher). At heart, the meme-stock bubble wasn’t about a brighter future. It was about trying to collectively game the system.
Along the way, though, many meme-stock investors convinced themselves that these beaten-down companies were actually hidden gems whose businesses would soar once the short sellers stopped holding them down. So, we were told that GameStop was going to reinvent itself by making a big move into digital gaming and e-commerce, Blackberry was going to leverage its brand name to become a major player in cybersecurity, and, most improbable of all, that Bed Bath & Beyond was sitting on a multi-billion-dollar baby business (Buybuy Baby).
But none of these rosy futures has panned out. GameStop is still a money-losing retailer whose main business is selling physical games at old retail stores. AMC was smart enough to use the precipitous rise in its stock price to raise a big chunk of capital, which helped it avoid bankruptcy. But its core business challenges—competition from streaming, and owning thousands of movie theaters at a time when moviegoing habits seem to have shifted permanently—have not gone away. And Bed Bath & Beyond said this week that its revenue fell by 33% from a year ago, suggesting that it’s falling into the death spiral that has killed many retailers in the past: shrinking sales force, job cuts, and store closings—which leads to further losses and drives customers away, leading to further shrinking sales, and so on into oblivion.
And that, ultimately, is what’s so striking about the meme-stock bubble: It had almost no impact on the real world. Previous bubbles led to investment in new technologies and channeled capital to new companies. A lot of that money was wasted, but some of it ended up creating things of real value—the internet and telecom bubbles, after all, gave us Amazon and Google, and thousands of miles of new fiber across the country. Heck, even the bowling-stock bubble led to more bowling alleys being built across America.
The meme-stock bubble, though, has no real legacy, other than . . . some memes and catchphrases. It was just a bout of collective madness that made some people very rich and a lot of people much poorer. And while it’d be nice to think that, at the very least, the bubble bursting taught traders not to make reckless gambles on crappy companies, it didn’t. Look at Bed Bath & Beyond. It may be about to go bankrupt, but its stock? Retail traders taking a wild gamble have driven it up 100% in the past three days. Some people never learn.
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