The stock was one of the first to garner a large Reddit and social media following earlier this year and is up about 1,100 percent in 2021.
GameStop Corp.’s meteoric rally this year as one of the first icons of meme shares may be losing steam after the company said it planned to sell more shares and offered few details about its turnaround strategy.
The Grapevine, Texas-based video game retailer fell 27% to $ 220.39 on Thursday in the biggest drop since March 24. The stock, which was among the first to gain a large following on Reddit and on social media earlier this year, has risen roughly. 1,100% in 2021, as retail investors rallied to take on short sellers and amid optimism about a corporate shift.
With the stock around 50% of its intraday all-time high of $ 483, investors are still waiting for a clear strategy from newly appointed chairman and activist investor Ryan Cohen. GameStop announced a pair of new leaders from Amazon.com Inc. to help turn the brick and mortar chain into an e-commerce powerhouse.
“Investors deserve more than memes to assess a company’s long-term fundamental prospects,” Baird analyst Colin Sebastian wrote in a note. While it clearly lays the foundation for digital transformation, the board is not ready to reveal details on some challenges, it said.
The news that GameStop may offer another 5 million shares and that the Securities and Exchange Commission is investigating the above trading activity also weighs on its shares.
“Trade research is definitely a big red flag,” David Trainer, chief executive of investment research firm New Constructs, said in an interview. It may be “the needle that can break the balloon of stock valuation.”
For Wedbush analyst Michael Pachter, the outcome of the investigation is unclear and investors may have been more disappointed with the planned share offering. The shelf record “may have had something to do with” the decline following the results, Lieter wrote in a note Thursday. Still, he sees the potential share sale as a positive for the company, as it would provide more dry powder for acquisitions.
GameStop’s earnings call, which was streamed live on YouTube and had several thousand viewers, lasted just 11 minutes. Outgoing CEO George Sherman was the only executive who spoke and declined to answer questions from analysts.
Sherman will be replaced on June 21 by Matt Furlong, who led Amazon’s Australian operations. GameStop also hired another Amazon alumnus, Mike Recupero, as CFO. The new recruits are part of Cohen’s broader effort to transform the company into a success story.
GameStop requested the potential sale of up to 5 million shares through a market offering, which allows retail investors to buy directly. It previously raised $ 551 million through an ATM offering in April. Otherwise, the company has stayed away from selling shares this year, despite calls from analysts to raise capital and a spate of similar deals from other meme stocks. The new share sale program announced Wednesday allows GameStop to raise up to $ 1.51 billion, based on the latest closing price.
The retailer also posted better-than-expected quarterly sales of $ 1.28 billion and a loss that was less than expected.