The stock was among the first to gain a huge Reddit and social media following earlier this year and has risen nearly 1,100 percent in 2021.
GameStop Corp. The meteoric rally of one of the first meme-stock icons this year may have lost steam as 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% on Thursday to $220.39, its biggest drop since March 24. The stock, which was one of the first to gain a huge Reddit and social media following earlier this year, has soared nearly 1,100. % in 2021 as retail investors band together amid optimism over the take on short sellers and corporate turnaround.
With the stock nearly 50% off its intraday record 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 transform the brick-and-mortar chain into an e-commerce powerhouse.
“Investors deserve more than memes for valuing a company’s fundamental, long-term prospects,” Baird analyst Colin Sebastian wrote in a note. While clearly laying the groundwork for digital transformation, the board is unwilling to disclose details on some of the challenges, he said.
News that GameStop may offer another 5 million shares and that past trading activity is being investigated by the Securities and Exchange Commission is weighing on its stock as well.
“Trade scrutiny is definitely a big red flag,” David Trainer, chief executive officer of investment research firm New Constructs, said in an interview. It “could be the needle that can break a stock’s valuation balloon.”
For Wedbush analyst Michael Pachter, the outcome of the investigation is unclear and investors may be more disappointed by the planned share offering. Shelf registration “might have something to do” with the fall after the results, Pachter wrote in a note on Thursday. Still, he sees the potential stock sale as a positive for the company because it would provide more dry powder for the acquisition.
GameStop’s earnings call, which was livestreamed on YouTube and garnered several thousand viewers, lasted only 11 minutes. Outgoing CEO George Sherman was the only executive who spoke, and he declined to take 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 Ricupero, as chief financial officer. The new recruits are part of Cohen’s broader effort to turn the company into a success story.
Gamestop filed for a potential sale of 5 million shares through a market offering, which allows retail investors to buy directly. It had previously raised $551 million through an ATM offering in April. The company has shied away from selling shares this year, despite equity raises by analysts and a flurry of similar deals by fellow Mem stocks. The new share sale program announced Wednesday enables Gamestop to raise up to $1.51 billion based on the final closing price.
The retailer also reported better-than-expected quarterly sales of $1.28 billion and a loss that was lower than predicted.