Do meme stonks still stink?

This is an audio transcript of the FT News Briefing podcast episode: ‘Do meme stonks still stink?’

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, February 1st, and this is your FT News Briefing.

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Britain is braced for its biggest strikes in 11 years. Brussels is out with a plan to compete with Washington’s clean energy subsidies. Plus, whatever happened to all those meme stock companies like GameStop?

Jennifer Hughes
There was a lesson for them to take from this. It’s you have to be nimble and move quickly to raise cash.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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In the UK today, hundreds of thousands of public sector workers plan to walk off the job. They include train drivers, civil servants and teachers in England and Wales. Public sector workers have been asking for pay rises that make up for inflation. Government ministers are still resisting those demands. Today’s co-ordinated strikes are also to protest legislation that would mandate minimum service during strikes in key areas like transportation and health.

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The European Union will unveil a draft plan today to make it easier for EU countries to hand out clean energy subsidies. Brussels is doing this to compete with US legislation that includes huge subsidies for green investment. Here’s the FT’s Sam Fleming with more details on the EU’s plan.

Sam Fleming
The one that’s got the most attention is to do with the state aid rules that the European Union uses to try and keep a level playing field in the single market. And the idea here is that the European Union will make it easier effectively for member states to get approval when they’re offering subsidies to green companies. If it’s easier for European Union member states to hand subsidies or tax breaks to their companies, then they’ll be able to compete a bit better, because of the very generous fiscal support that that legislation offers for US companies.

Marc Filippino
Now, the legislation we’re talking about here is President Joe Biden’s Inflation Reduction Act. It’s got hundreds of billions of dollars in subsidies for green investment. Sam, how much of a threat is this actually to the EU and how much substance is there to EU concerns?

Sam Fleming
There certainly is substance to the EU’s concerns because we’ve heard from numerous companies, big and small, that they’re very interested in what the Inflation Reduction Act has to offer. And there have certainly been examples of companies threatening to leave, and also EU leaders talking about quite aggressive attempts from the United States to use the IRA, the Inflation Reduction Act, as a way of luring European companies over. One of the counterarguments is that the EU does have quite a lot of hundreds of billions of EU funding being ploughed into the green transition already. And so some EU officials point out that actually part of what the Inflation Reduction Act is doing is arguably a catch-up to what the EU has already been working on.

Marc Filippino
Do you have a sense of how member states feel about this EU plan?

Sam Fleming
Well, the member states’ responses will really become clear in the next few days as they have more time to digest what the commission is proposing. What we do know is that France is among the most vocal in wanting an aggressive loosening of state aid rules and wants the most liberty to offer subsidies to green tech companies in the green transition. Germany, slightly less vocally, is also on board with that idea. But numerous other member states are much more cautious about an extensive loosening of the state aid rules because they do worry that it will imbalance the playing field of the single market and make the deepest-pocketed member states, make it easier for them to hand out money to their companies while countries which have more stretched public finances would find it difficult to kind of match the generosity of the subsidies that are on offer on those richer member states.

Marc Filippino
Sam Fleming is the FT’s Brussels bureau chief.

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You know what we haven’t talked about in a while? Meme stocks.

News clips
Shares of GameStop . . . GameStop . . . GameStop . . . GameStop shares . . . We are seeing a phenomenon that I have ever seen . . . There’s nothing normal about what you’re seeing when it comes to this . . . 

Marc Filippino
Around this time two years ago, this phenomenon took off. Individual investors were stuck at home, bored, armed with stimulus checks and a lot of unspent dollars. They poured money into cheap stocks like GameStop, Bed Bath & Beyond and the cinema chain AMC. Share prices soared. Some of these retail investors, as they’re called, made a fortune. Some lost big time, and companies raked in fresh capital. So how are those companies doing now? The FT’s Jennifer Hughes joins me to answer that question. Hey, Jen.

Jennifer Hughes
Hey there.

Marc Filippino
So, Jen, you and your colleagues did some research into the companies that benefited from the meme-stock craze. How many did you look at and how are they doing?

Jennifer Hughes
There’s no single number of meme stocks out there. There’s an exchange traded fund that has more than 25 names in it, and I have limited patience. So we focused on the eight biggest ones that, the ones that Robinhood halted on January the 28th.

Marc Filippino
Robinhood, the retail . . . 

Jennifer Hughes
The retail broker. And so when they halted these stocks, it was outrage among these investors who’d been bidding them higher and higher. So we focused on those eight. And between them, they’ve raised about nearly $5bn in the two years since then.

Marc Filippino
That is a crazy amount for these companies to have raised. Did they put the money to good use? Are they more profitable? Are they performing better? What’s going on?

Jennifer Hughes
The answer is not necessarily. GameStop doesn’t look to be much closer to profitability. AMC, its losses have shrunk, but it’s hard to say how much of that is the improved operating environment as we go back to the cinema and there are more films being shown. And in fact, there was a cinema chain, one of its rivals went bust about six months ago and in its filing actually said it wished it had been a meme stock like AMC.

Marc Filippino
This was Cineworld, right?

Jennifer Hughes
Yes, Cineworld. That’s the one. So these companies have been out there raising this money. GameStop’s cut its debts. It’s now looking into the metaverse, NFTs, blockchain. So they’re in a better financial position. But whether the money will be well used or whether it’s just put off the inevitable, that’s another matter.

Marc Filippino
So are meme stocks still a thing? Are retail investor is still talking up and investing in these stocks the way they did during the height of the pandemic?

Jennifer Hughes
It’s still going on to some extent — not to the extent it was back then, for sure, but there’s still a lot of discussion. You look in the Reddit forums, the online chat forums like wallstreetbets, where the meme-stock guys like to gather and chat, and there’s still a lot of interest in the whole thing. So there are still people doing this. It’s just there aren’t as many as there were back then. But now they’re looking at other things. There are still people setting up websites with different sorts of investments. They can move into commodities. I’m still not sure that’s a good idea, either. But there’s lots of things for retail investors to do.

Marc Filippino
And what about companies? What’s the big takeaway for them, Jen?

Jennifer Hughes
Now, for the companies, if there was a lesson for them to take from this, it’s you have to be nimble and move quickly to raise cash. Some companies took the opportunity to raise funds and get themselves to a position where they bought themselves time. So companies like AMC, GameStop can look at other opportunities to improve their businesses. And the guys that didn’t or couldn’t move that quickly, like Bed Bath, are really struggling now.

Marc Filippino
Jennifer Hughes is the FT’s US markets editor. Thanks, Jen.

Jennifer Hughes
You’re welcome.

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Marc Filippino
China’s government is hoping for an economic rebound after lifting its Covid lockdowns. Well, one industry apparently has already taken off: alcohol. People want to party now that they can gather again and celebrate. And sales have jumped. Now, the most valuable non-tech stock in China is a company that makes a premium brand of the national alcohol called Moutai.

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Marc Filippino
Now, not everyone is so giddy about alcohol sales picking up. Distributors still have so much inventory from the slow days of the pandemic, they can’t raise prices. And some of those distributors are still in the red.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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