The action was among the first to get a huge Reddit and social media deal earlier this year, and has jumped about 1,100% in 2021.
The meteoric rally of GameStop Corp. this year as one of the first stock icons even could lose momentum after the company announced plans to sell more stocks and offered few details on its turnaround strategy.
The Grapevine, Texas-based video game retailer fell 27% to $ 220.39 on Thursday in the biggest drop since March 24. % in 2021 as retail investors banded together to take on short sellers and amid optimism about business recovery.
With stocks at around 50% of its intraday high of $ 483, investors are still waiting for a clear strategy from new president and activist investor Ryan Cohen. GameStop has announced two new leaders from Amazon.com Inc. to help turn the brick-and-mortar chain into an ecommerce powerhouse.
“Investors deserve more than memes to assess a company’s long-term fundamental outlook,” Baird analyst Colin Sebastian wrote in a note. While clearly laying the groundwork for digital transformation, the board is not ready to divulge details about some challenges, he said.
News that GameStop may offer an additional 5 million shares and that past trading activities are under investigation by the Securities and Exchange Commission is also weighing on its shares.
“The business investigation is definitely a big red flag,” said David Trainer, CEO of investment research firm New Constructs, in an interview. Perhaps it is “the needle that can blow the balloon of action valuation”.
For Wedbush analyst Michael Pachter, the outcome of the investigation is unclear and investors may have been more disappointed with the planned stock offering. The shelf recording “may have something to do with” the decline following the results, Pachter wrote in a note Thursday. Nonetheless, he sees the potential share sale as positive for the company, as it would provide more dry powder for acquisitions.
GameStop’s earnings call, which was broadcast live on YouTube and drew several thousand viewers, lasted just 11 minutes. Outgoing CEO George Sherman was the only executive to speak and he declined to answer analysts’ questions.
Sherman will be replaced on June 21 by Matt Furlong, who headed Amazon’s Australian operations. GameStop has also hired fellow Amazon alumnus Mike Recupero as CFO. The new hires are part of Cohen’s larger effort to turn the business into a success.
GameStop has requested a potential sale of up to 5 million shares via a market offer, which allows retail investors to buy directly. It previously raised $ 551 million through an ATM offering in April. The company has also stayed away from selling stocks this year, despite calls from analysts for fundraising and a flood of similar deals through other memes stocks. The new share sale program announced on Wednesday allows GameStop to raise up to $ 1.51 billion, based on the last closing price.
The retailer also reported better-than-expected quarterly sales of $ 1.28 billion and a smaller-than-expected loss.