Shares of GameStop cratered Friday after the company dumped several unwelcome announcements on investors, as 2024’s meme stock rally born just days away looks to be fading away.
GameStop stock's time in the sun appears to be dimming.
GameStop’s stock tanked 27% to $20 shortly after market open, picking up where it left off after declining 19% Wednesday and 30% Thursday.
Shares of the video game retailer are down 69% from their Tuesday peak of $64.83, though they remain about 15% above their $17.46 share price a week ago, shortly before the social media frenzy boosted GameStop’s share price, as retail investors piled into the stock like they famously did in 2021.
Unlike the early-week rally, the Friday selloff was driven by a company announcement of preliminary earnings results and a possible new equity offering—both of which were negative catalysts for investors.
GameStop said Friday it expects a net loss of between $27 million and $37 million in its first fiscal quarter of 2024, with the $32 million midpoint well worse than average analyst forecasts of a $28 million loss, and to bring in between $872 million and $892 million of revenue, far below estimates of $1.05 billion and last year’s same period’s $1.24 billion (FactSet data only aggregates estimates from two analysts, much less than more mainstream stocks as GameStop is mostly of interest to investors not focused on fundamentals).
Perhaps more importantly, GameStop announced it entered an agreement with investment bank Jefferies to list up to 45 million shares of its common stock, an offering that could expand the company’s outstanding shares by about 15%, threatening dilution.
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Fellow meme stock AMC declined as much as 4% Friday, with its shares now down 61% from their Tuesday peak. Both AMC and GameStop surged Monday and Tuesday after Roaring Kitty, the X account linked to 2021 meme stock captain Keith Gill, posted for the first time since 2021, sparking users congregating on social media forums like Reddit’s WallStreetBets to pile money into the slumping brick-and-mortar companies.
New equity issuances are typically viewed as a negative for shareholders as it diminishes the value of existing shares considering per share metrics would decrease by the same proportion outstanding shares increase. But it’s far from a shocking development for GameStop, as new equity offerings are the main way for companies whose share prices skyrocketed to cash in, as stock movements don’t actually impact day-to-day operations for already public companies. The sudden 2021 rally for stocks like GameStop was similarly fleeting, as GameStop shares fell almost 90% within a month of their Jan. 2021 high.