Meme stocks like GameStop and AMC Entertainment plunged on Friday amid a rise in risk-off sentiment.
The decline came after retail investor favorite Ryan Cohen abruptly sold his stake in Bed Bath & Beyond.
Cohen rose to fame after piling into GameStop amid the original meme-stock craze in early 2021.
GameStop and AMC Entertainment shares fell more than 9% in early Friday trades. Meanwhile, Bed Bath & Beyond plunged more than 40% as investors lose hope that Cohen could spark a turnaround in the struggling home goods retailer.
Cohen gave up on Bed Bath & Beyond and booked a nearly $60 million profit on his stake as it became clear that the company's large debt load, combined with declining sales, could ultimately lead to bankruptcy. Bed Bath & Beyond hired debt restructuring lawyers this week, according to a Bloomberg report.
The swift and sharp decline in Bed Bath & Beyond likely served as a reminder to meme stock investors that these stocks are highly volatile as the underlying companies are not in a position of strength relative to the past.
GameStop has been threatened by the rise of digital game downloads, while the rise of video streaming services like Netflix and Disney+ has led to consistent declines in movie theater attendance.
Likely adding to AMC Entertainment's stock weakness on Friday is a report from the Wall Street Journal that UK-based Cineworld, owner of Regal Cinemas in the US, is preparing for bankruptcy due to a lack of blockbusters and a large pile of debt.
While the US box office has seen strength so far this year, with movies like Top Gun and Minions driving people to theaters, overall attendance is still down. AMC Entertainment has more than $5 billion in debt and is still not profitable.
And as a broader risk-off move in the stock market on Friday contributed to GameStop's weakness, Cohen's abrupt exit from Bed Bath & Beyond likely did too. Cohen is chairman of GameStop and his firm owns more than 36 million shares of the video game retailer.
Cohen has shown no signs of losing confidence in GameStop, but his abrupt about face in Bed Bath & Beyond should serve as a reminder to meme-stock investors that activists can sell their stake as quickly as they amassed it.
Read the original article on Business Insider