Plans to sell more stock may have overshadowed some positive news for GameStop. Stock in the videogame retailer approached its stratospheric January highs earlier this week, but it fell sharply on Thursday.
GameStop stock (ticker: GME) closed down 27%, to $220.39. It was its lowest close since May 25, snapping a three-day winning streak. The stock saw heavy volume, with 22.5 million shares traded—the most since March 26. Fellow meme stock AMC Entertainment Holdings (AMC) fell 13%, to $42.84.
While it’s possible the meme trade is finally running out of steam, keep in mind this move in GameStop shares mimics its prior earnings release reaction, when shares closed down 34% on March 24. The stock roared back the following day.
This time around, investors weighed better-than-expected financial results and the naming of new leadership against news, released Wednesday evening, that the company filed to sell 5 million shares at market prices. GameStop also said it is cooperating with a Securities and Exchange Commission investigation of trading in its stock and other securities.
Stock offerings tend to drag down the price of existing shares, but Wedbush analyst Michael Pachter cited positive elements in the news. He noted that in the grand scheme of things, such a sale would mean only about 7% dilution. The company completed an offering of 3.5 million shares earlier this year.
Pachter maintained an Underperform rating on the stock, but raised his price target to $50 from $39, reflecting cash the company will raise from the sale. He said a conservative estimate is that the shares will sell at an average price of $200.
The quarterly results were mixed, according to Pachter. Sales were better than expected, but the company’s adjusted net loss was larger than he anticipated.
Aside from the stock sale and SEC news, the company said it was hiring two former Amazon.com (AMZN) executives to be its next CEO and finance chief. Ryan Cohen, the co-founder of Chewy and a major holder of GameStop stock, spoke to shareholders after being elected chairman of the board.
Jefferies analyst Stephanie Wissink maintained a Hold rating and Street-high $175 price target in a note Thursday. She notes that incoming CEO Matt Furlong and CFO Mike Recupero join several recent hires with experience from Amazon.
“We had been keeping a close eye on leadership changes at GME as new appointments have given us clues as to the degree of transformation underway,” Wissink wrote.
Baird analyst Colin Sebastian said that while Cohen’s address to shareholders outlined some of his philosophies, disclosures on GameStop’s actual strategy still lack substance. While the rally in the stock and hot new gaming consoles from Sony and Microsoft have benefited the company, Sebastian said the board hasn’t provided details on how it plans to adapt to digital trends that threaten to eliminate the need for its videogame stores.
Such trends include broader shifts toward direct downloads, streaming, and cloud services. Sebastian maintained a Neutral rating and $25 price target, pointing to the nonfundamental factors driving the stock’s performance and volatility.
“No doubt the console transition period is providing a lifeline, but games are not dog food, and investors deserve more than memes to value a company’s fundamental, long-term prospects,” Sebastian wrote.
Write to Connor Smith at [email protected]