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GameStop rout reaches $8 billion after plan to sell shares

The shares plunged 20 per cent on Friday, as the video game retailer entered a pact to potentially offer up to 45 million shares and reported a drop in preliminary first-quarter net sales.
Last Updated : 18 May 2024, 10:26 IST
Last Updated : 18 May 2024, 10:26 IST

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GameStop Corp. tumbled after filings opened the door for it to sell more equity, furthering a rout that erased most of the meme-fueled rally that had sent the stock soaring 271 per cent at the start of the week.

The shares plunged 20 per cent on Friday, as the video game retailer entered a pact to potentially offer up to 45 million shares and reported a drop in preliminary first-quarter net sales.

The stock has shed more than $8 billion in value over the three-day retreat, as its weekly advance dwindled to 27 per cent.

“GameStop is capitalising on a recent spike in share price by prudently issuing shares at a premium, providing itself a greater level of reserves while it struggles to re-focus its business and reverse continuing operating losses,” Wedbush analyst Michael Pachter, wrote in a note to clients.

GameStop shares retreat after meme rally.

GameStop shares retreat after meme rally.

Credit: Bloomberg Photo

GameStop said on Friday that its preliminary first-quarter net sales were between $872 million and $892 million, compared with $1.2 billion in the year earlier period.

AMC Entertainment Holdings Inc., which had joined in the recent volatility, fell 5.2 per cent.

Earlier in the week, AMC had taken advantage of its stock rally by swapping shares to reduce its debt and saying it had completed an equity offering that had been previously announced.

Friday’s moves came after the trading intensity that powered this week’s rally eased significantly. “Retail investors’ purchases of GME and AMC have seen a significant decline,” said Giacomo Pierantoni, Head of data at Vanda Research.

While GameStop experienced about $5 million in inflows over the last two days, inflows into AMC were “nearly non-existent” on Thursday, he said.

The return to social media by “Roaring Kitty,” the online moniker of Keith Gill that fanned the retail buying frenzy in 2021, ignited the latest rally.

The high volatility and heavy options activity gave Wall Street investors flashbacks of early 2021, when retail traders bet on the video game retailer and beleaguered movie theater chain and propelled both stocks to record highs.

However, conditions are not the same this time around. Options activity for GameStop has declined, while activity around AMC shares has more than halved from Monday’s peak.

Option activity on AMC is fading fast.

Option activity on AMC is fading fast.

Credit: Bloomberg Photo

“It appears to me that the mini bubble is collapsing,” said Pierantoni. “When flows deviate from an exponential growth pattern and decline rapidly, it indicates that sentiment is quite fragile.”

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Published 18 May 2024, 10:26 IST

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