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GameStop, the popular videogame retailer, saw its shares plummet 26% on Friday following the announcement that it plans to sell up to 45 million shares.
This decision comes amidst a surge in trading volume fueled by renewed interest from the meme-stock community, particularly after posts from Keith Gill, known as “Roaring Kitty,” on X (formerly Twitter). Gill’s optimistic views on GameStop had previously sparked the 2021 meme-stocks frenzy.
Strategic Move Amid Cash Needs:
Paul Nolte, senior wealth adviser at Murphy & Sylvest, commented on the strategy, stating, “If your stock is up, fourfold or fivefold in very short order, and you’re hurting for cash, it makes a lot of sense to go to the equity market and raise some cash.”
He added that while the move is sensible from a corporate standpoint, diluting existing shareholders’ stakes may dampen the recent rally.
Stock Performance and Market Valuation:
GameStop’s shares were trading at $20.56, resulting in a market value of $6.3 billion, down from a peak market value of $19.8 billion earlier in the week. Despite the drop, the stock remains up approximately 90% in May.
The company filed for a mixed-shelf offering, allowing it to raise capital through various securities offerings. GameStop also forecasted a decline in first-quarter net sales to between $872 million and $892 million, compared to $1.24 billion a year earlier.
The retailer, heavily reliant on its brick-and-mortar stores, continues to face challenges as consumers increasingly shift to online video games and collectible purchases.
However, due to cost-cutting measures, GameStop expects its first-quarter net loss to narrow. Wedbush analyst Michael Pachter noted, “Ultimately, the company must deploy its cash productively or continue to hope that it can issue more shares at elevated levels to forestall the inevitable.”
Parallels with AMC’s Strategy:
GameStop’s move is reminiscent of theater chain AMC’s recent $250 million “at-the-market” share sale program and an equity-for-debt swap deal to reduce its debt. AMC’s shares, which hit a record low last month, fell 4% on Friday, bringing its monthly gains to 52%.
