Video game retailer GameStop plummeted 26% on the stock market Friday (May 17) after a week-long attempt at selling up to 45 million shares as part of a week-long meme-stocks rally.
The company's shares recorded its highest trading volume in three years this week at $19.8 billion. This was purportedly propped by Keith Gill's "Roaring Kitty" account on X, formerly Twitter, which already had a precedent back in 2021.
Taking Advantage of Stock Market Move
On Friday, GameStop filed for a mixed-shelf offering, a process where a firm could raise capital by selling different types of securities in multiple separate offerings.
Murphy & Sylvest senior wealth adviser Paul Nolte told Reuters that it made sense for a company to go to the equity market to raise revenues when its stocks are rising in a very short order, especially because the retailer was largely relying on sales at its brick-and-mortar stores in a time when customers transition from physical game products to buying games online.
Wedbush analyst Michael Pachter added that the firm "must deploy its cash productively" or attempt to issue more shares at "elevated levels" to keep the company from shutting its doors, a strategy similar to what AMC did earlier this week.
Disadvantages of Meme-Stocks
As of Friday afternoon, GameStop's shares were trading at $20.56 each, which accumulated to a market value of $6.3 billion.
However, the company also forecast that its first-quarter sales would drop between $872 million and $892 million from $1.24 billion in Q1 2023. CNBC quoted two analysts polled by FactSet when they said that they expected a first-quarter revenue of about $1 billion.
In late March, GameStop announced some job cuts to reduce costs, but fell short of specifying how many.
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