GameStop to sell up to 45mn new shares after latest ‘meme stock’ rally

GameStop has announced plans to sell up to 45mn new shares, following a week in which its stock soared after the re-emergence of a popular day trader synonymous with “meme stock” investing.

The video game retailer announced the plans in a filing on Friday with the US securities regulator. It accompanied preliminary results showing GameStop expected net sales in its first quarter to decline from a year ago.

GameStop shares closed 19.9 per cent lower at $22.21 in New York. If the company sold all 45mn shares at that price, it would raise about $1bn.

The latest move continues a volatile week for the stock, which almost quadrupled from last Friday’s close to an intraday high of $64.83 — the highest level since mid-2021 — during Tuesday’s trading session. GameStop shares’ gain this week totalled 27.2 per cent.

This followed a post on X from trader Keith Gill, known as “Roaring Kitty”, last weekend. GameStop on Friday said the swings in its share price “do not appear to be based on the underlying fundamentals of our business or results of operations”.

The Texas-based retailer said it expected first-quarter net sales to be in the range of $872mn to $892mn, a drop of at least 27 per cent from a year ago, and less than the $1.05bn analysts had expected. Net losses are expected to range from $27mn to $37mn, down from $50.5mn a year before. Analysts had forecast a loss of $30.6mn.

Cinema group AMC Entertainment, another company swept up in the original meme stock frenzy in 2021, also tapped the market this week as its share price surged. 

On Wednesday, AMC said in a regulatory filing that it reached a deal to exchange close to $164mn of subordinated debt due in 2026 for 23.3mn shares of newly issued stock. The stock issued then had an implied value of $7.33 per share. AMC’s shares closed at $4.40 on Friday, but advanced 51.2 per cent this week.

Both AMC and GameStop appear to have “opportunistically taken advantage of these waves of demand that pushed up prices”, said Marco Iachini, senior vice-president of research at Vanda Track.

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Retail’s share of trading in GameStop was about 16 per cent last week, according to Vanda Track data.

By Monday, however — after Roaring Kitty’s first social media post in three years — the notional amount of shares traded “jumped significantly, but the percentage of retail participation dropped to about 3 per cent”, Iachini said. “This suggests that hedge funds [and other institutional investors] front-ran everyone else.”

Filings to the US securities regulator this week showed quantitative hedge fund Renaissance Technologies bought 1mn shares in GameStop and a further 3.82mn shares in AMC at some point in the first quarter of 2024.

Roaring Kitty’s social media post on Sunday provided the spark for GameStop’s rally on Monday and Tuesday. Shares in both companies have fallen sharply since, wiping billions of dollars off their market value.

“New shareholders were brought in by a frenzy, if you want to be derogatory, or some kind of hype,” said Dhruv Chand Aggarwal, an assistant professor of law at Northwestern Pritzker School of Law, who last year co-authored a paper on 2021’s “meme stock frenzy”.