From GameStop to Chewy – The Roaring Kitty Effect is Real

Have you heard of Keith Gill, also called Keith' Roaring Kitty' Gill? The name might ring a bell if you remember the GameStop price-spike case that happened during 2020-2. And if you still fail to recall, we will delve deeper soon.

But, before that, this is to remind you that Roaring Kitty is Gill's YouTube channel and – also – his X handle. The channel has close to 1 million subscribers, while the X handle has 1.6 million followers! What do these numbers suggest? If not anything, it indicates that whatever Keith Gill had to say through his social media channels received a certain audience and viewership!

Now, let us go back a few years and look into the GameStop case and Keith Gill's role. 

What was the GameStop Controversy all about?

Many market analysts and trade experts term the GameStop stock trading episode ‘unprecedented.' For the first time in recent history, one could see market participants organizing collective action ‘openly yet anonymously.' 

To recount briefly: from January 13th, 2021, Gamestop shares started witnessing a sudden and drastic price surge. The returns were volatile. 

The traction GameStop gained could eventually be traced back to an increase in retail trading by Robinhood Financial Platform users. Although the chatter was organized through social media and a significant role was played by the WallStreetBets chat forum on Reddit, there was an entity whose role was particularly pivotal in all these. That was Keith Gill.  

Keith joined X, erstwhile Twitter, in 2014 and started posting on YouTube in 2015. His videos and live streams revolved around his daily tracking of stocks and performing investment research. Gill became an active Reddit member in 2019 and started routinely sharing his views and opinions in the WallStreetBets community under the handle called ‘DFV.'

Keith also shared his thoughts on these platforms on GameStop stock, saying that he thought they were undervalued. He also participated actively by purchasing stocks worth $53,000, and when the stock price rose to $483 per share in January 2021, his investment was valued at nearly $48 million. Around this time, Gill, a financial analyst with MassMutual, was forced to resign from his position. 

Subsequently, Gill faced a class action lawsuit and testified to Congress. He said he believed the GameStop stock was “dramatically undervalued.” The Federal Court in Massachusetts accused Gill of causing notable losses to small retail investors and violating the securities laws. However, the suit was eventually dismissed. 

Gill went away from public view, keeping his present location unclear. Many speculated that he and his wife were living a quiet life with their daughter in Wilmington, Massachusetts. 

He had stopped posting on his social media handles until May 12th, 2024, when his X handle saw a picture of a man leaning forward on his chair, apparently playing video games. Since then, many X posts have appeared on Gill's timeline. One post that deserves a special mention is that of a person telling his reflected image in the mirror, ‘You Were a Billionaire!'

The Return of the Prodigal Gill

While many assumed the water had settled around Gamestop, with its stocks trading around US$25 now, the buzz says that Gill is back. This time, he is quietly building his stake in Chewy. 

On June 7th this year, the Roaring Kitty YouTube channel saw its first livestream in three years. In May and June, Gill expressed his bullish views on the GameStop stock, which caused a spike in the stock's price again. However, in early June, Gill/Roaring Kitty started scaling back on GameStop and building his stake in Chewy. 

From GameStop to Chewy Via Ryan Cohen

Chewy, for those who are unfamiliar with the brand, is an American online retailer of pet food and other pet-related products based in Plantation, Florida. The interesting connection that everyone is talking about is Ryan Cohen, who is the CEO of GameStop and the former CEO of Chewy. Before looking into Keith Gill's association with Chewy, let us have a quick look at Ryan Cohen's journey. 

The former CEO of Chewy, Ryan Cohen, co-founded the online pet supplies store in 2011. He grew the business to an enviable US$3.5 billion size before stepping down in 2018. By then, he had sold Chewy to PetSmart for US$3.4 billion in 2017. 

Approximately two years after leaving Gamestop, Ryan spent about US$76 million and bought a 13% stake in GameStop by the end of 2020. He wielded his influence as a significant stakeholder in the company to urge the management to restructure the ailing brick-and-mortar enterprise. Eventually, he joined the GameStop board in January 2021 and—reportedly—saw a surge in his fortune from the GameStop price spike. 

In conclusion of this brief overview, one can adequately say that Keith Gill's retail trade activism helped Ryan suddenly grow his GameStop-related assets. And now, Gill is back building a stake in Ryan's earlier company, Chewy. Let us see how! 

Keith' Roaring Kitty' Gill Becomes the Third-Largest Shareholder in Chewy

The return of the Roaring Kitty created enough turbulence in the market when he disclosed a significant stake in Chewy. To be factually precise, the SEC filing showed that Gill had acquired more than 9 million Chewy stocks, which accounted for a 6.6% stake in the company. His stake totaled around US$245 million in absolute value, calculated as per the closing price of that time. Overall, Gill became the third-largest shareholder. 

The market initially responded to the SEC declaration, with stocks rallying 9% on the news, but they quickly reversed course and fell into negative territory.

At the time of writing this article, the stock is trading at a price of around US$28. 

The Keith Gill-Ryan Cohen Combo

What does this Keith Gill saga tell us as of now? While it is too early to pass a judgment or even make a definitive statement, it is for sure that it is another instance where Keith Gill's activities could benefit a firm that associates itself with Ryan Cohen. Is there more to the story than this? Time will tell. 

Whatever the case be, Keith Gill remains an enigmatic entity in the world of retail trading. It is important to be aware of Gill's past actions if one is to make informed guesses on what might happen to the Chewy stock!

Chewy Leading Towards a Pump-and-Dump?

Keith' Roaring Kitty' Gill's activities are often associated with a type known as pump-and-dump schemes, in which the investor usually puts his money into beaten-down and significantly shorted stocks. 

Many Wall Street analysts anticipate a substantial rise in Chewy's volatility. Repeating the techniques that were adopted during the GameStop price spike, Mizuho Securities' analyst David Bellinger has already noted a surge in retail investor activity on several online platforms such as Reddit (NYSE: RDDT) and X. There is a high probability that these investors might trade in and out of Chewy based on technical indicators and Roaring Kitty's actions.

According to Arun Sundaram, a CFRA Research analyst, investors should brace themselves for heightened volatility as Chewy's trades might become similar to those of other meme stocks in recent times.

The efforts to create momentum around the Chewy stock came at a time when its revenue had decelerated after reaching a peak during the pandemic when mobility restrictions helped the company get more sales.

If we look at the growth numbers, Chewy experienced revenue growth of 10% YoY in fiscal 2024, while fiscal 2020 and 2021 saw revenue growth of 37% and 47%, respectively. 

However, the dampened growth does not immediately imply a dampened prospect for Chewy. The sector to which the company belongs is slated for growth. Allied Market Research projects the global pet insurance market to grow at a CAGR of 14.5% through 2033, implying a market value surge from $10.1 billion in 2023 to $38.3 billion by 2033.

Another market in the domain, the pet pharmacy business, is also expected to grow at a CAGR of close to 6% through 2029. As per news agencies quoting Chewy CEO Sumit Singh, the company is on track to exceed $1 billion in annual revenue from the Pharmacy business. The company serves a base of 20 million active users. Any momentum and viability-enhancing activity around the stock at this point might help it gain a notable surge in the short to medium run. 

And what could be better than the famously infamous Roaring Kitty effect serving as a tailwind? When we speak about the Roaring Kitty effect, we must remember that it is not some geeky stock-market insider phenomenon. There is a whole movie made around Keith Gill, making him a part of our everyday pop culture.

‘Dumb Money': The Film Following Keith Gill

The 2023 film Dumb Money features well-known actor Paul Dano in the role of Keith Gill. 

Even before the film came out, there came a book on Gill by Ben Mezrich in 2021. The book was titled  “The Antisocial Network.“ The film was co-written by Rebecca Angelo and Lauren Schuker Blum, who adapted the screenplay from the book. The film showed Gill as someone fighting against Wall Street titans in a David Vs. Goliath scenario. 

While speaking about the soul of the story, Craig Gillespie, the director, had the following to say:

“Quite simply, the hedge funds were betting the stock would go down. The Reddit users figured out that if they all rallied together, they could pump the stock up. Not only would they get to make a lot of money, but they could also really stick it to hedge funds, who would actually lose money.”

Essentially, Keith could be seen leading a grassroots movement against big-time hedge funds. But we must remember that questions were raised around the legality of Gill's actions. 

The Legality and Lawsuits

According to reports published on July 1st, 2024, a lawsuit that had accused Keith Gil of engaging in a “pump and dump“ scheme involving GameStop Corp. shares was dropped within days of its filing. 

The class action lawsuit was filed in Brooklyn, New York, in a federal court by GameStop shareholder Martin Radev, who was suing Gill for securities fraud, claiming he was seeking to manipulate the stock for his gain. However, two days after filing the suit, Radev voluntarily dismissed it. 

Although there was not much clarity on what caused Radev to drop the lawsuit, as his lawyers didn't immediately respond to requests and Gill also didn't respond to emails seeking comments, the dismissal was without prejudice. This implies that Radev was free to file the suit again. Therefore, it is important to remain cognizant of what the complaint was.

The suit made the allegation that Gill had acquired 120,000 call options in GameStop before he began posting about the company in May, and by June 2nd, he owned 5 million shares of GameStop and 120,000 call options that were set to expire on June 21st. By June 13th, Gill's holdings had reportedly risen to more than 9 million shares of Gamestop with no outstanding call options. Radev alleged Gill of quietly selling and/or exercising/dumping “all 120,000 of his GameStop call options for a large profit, seemingly to increase his stake in GameStop stock by over 4 million shares.“ 

However, in all these, one must also remember that what happened around the Gamestop stock was not an act designed and devised by an individual alone. A community gathered around it, and platforms like Robinhood were involved. There came a detailed report titled “Game Stopped: How the Meme Stock Market Event Exposed Troubling Business Practices, Inadequate Risk Management, and the Need for Regulatory and Legislative Reform.”

Robinhood was on the hook for more than it held in collateral to settle the sudden spike in GameStop trades. It led to a fiasco as “On the morning of January 28th, 2021, Robinhood had approximately $696 million in collateral already on deposit with the NSCC, leaving it with a collateral deficit of approximately $3 billion, which it was required to post to satisfy the NSCC's clearing fund requirement or risk being in violation of the NSCC's rules and potentially losing the ability to clear trades for their customers altogether,“ said the report.

The Roaring Kitty Effect: Conflicting Yet Hard to Ignore

Legality is often subjective when the issue involves a community. Many see what Keith Gill did as an act of standing up to the big-time hedge funds that make huge gains by exploiting a speculative atmosphere. On the other hand, many see Roaring Kitty's act as nothing but sheer manipulation by people like Keith Gill, whose aim was to make big money in the garb of activism. 

It takes time to analyze events through the prism of good or bad. However, one can say for a surety that the involvement of Roaring Kitty always creates a stir, a significant one at that.