APRIL 5 — GameStop Corp fell 13 per cent today after the video game retailer said it may sell up to US$1 billion worth of stock as it tries to make the best of the 900 per cent surge in its shares from a Reddit-driven rally this year.
The company said it would sell up to 3.5 million shares and use the proceeds to speed up its shift to e-commerce in an overhaul being led by billionaire Ryan Cohen, top shareholder and board member of GameStop.
“The positive story is they’ll have more money to invest in their digital revolution, and the negative story is it’s massive dilution and would likely mean the stock faces some near-term pressure,” said Thomas Hayes, chairman of Great Hill Capital LLC in New York.
GameStop in January was at the centre of a trading frenzy, which lifted its valuation to as high as US$34 billion, as amateur investors joined ranks on online trading discussion groups including Reddit’s WallStreetBets to drive up stocks that hedge funds had bet against.
Other companies involved in the Reddit mania including movie theater operator AMC and airline operator American Airlines have already sold shares to help fund their recoveries from the COVID-19 pandemic.
“A lot of interested parties have been asking about when GameStop would do something like this,” Telsey Advisory Group analyst Joseph Feldman said.
“The stock has remained elevated so the company is taking advantage of the access to capital.”
GameStop finally said in March it was considering expanding on a US$100 million share sale plan it had originally announced in December, but was unable to execute due to regulatory restrictions.
The new at-the-market offering prospectus filed with the US Securities and Exchange Commission replaces the previous plan.
The sale could fetch GameStop up to US$670 million based on Thursday’s closing price of US$191.45. However, it is not obligated to stick to that price as at-the-market programs allow companies to sell stock over a prolonged period of time.
GameStop’s 3.5 million shares represent about 5 per cent of its outstanding shares, according to Refinitiv data. Jefferies LLC is its sales agent for the new offering at a commission of up to 1.5 per cent of the gross sales price per share.
Market participants expect Cohen, co-founder of online pet supplies retailer Chewy Inc, to make GameStop into an e-commerce juggernaut that can challenge bigger retailers like Target, Walmart and Amazon.
The research arm of Jefferies bumped its price target on GameStop stock last month to US$175 from US$15, citing the company’s pivot to online sales. The median price target of seven analysts still stands at US$25, according to Refinitiv data.
Separately, GameStop said today global sales for the nine-week period ending April 4 rose about 11 per cent.
Its shares were down at US$166.63 in premarket trading. — Reuters
