GameStop stock gets slammed by early earnings release, 75 million share sale
- GameStop files to sell 75 million shares of GME.
- GME stock drops 18% in Friday premarket.
- GameStop reports major Q1 misses on top and bottom lines.
- Keith Gill, aka Roaring Kitty, set to launch livestream on YouTube at 12:00pm EST.
GameStop (GME) has once again rained on Keith Gill’s parade as executives disclosed a plan to sell as many as 75 million shares of the stock in at-the-market prices
After Gill announced on Thursday that he would return to YouTube from whence he single-handedly launched his meme stock revolution in 2021, shares of the videogame retailer shot up more than 30% after hours and momentarily made Gill a paper billionaire for the first time. Now, GME stock is down more than 18% to $38.00 at the time of writing.
Friday’s equity market was supposed to hinge on the May Nonfarm Payrolls (NFP) report, but now the renewed GameStop saga is expected to draw the masses. As it happened, the NFP came in well above consensus, demonstrating that the US labor market remains robust after April saw dwindling hiring action.
GameStop stock news
Streaming under the moniker Roaring Kitty, Gill hinted on Thursday that he will be live streaming at 12:00 pm EST (16:00 pm GMT) on Friday. Gill had abandoned his YouTube channel after he turned his initial $57,000 into million of dollars back in 2021.
This is not the first time that GME has sought to benefit from Gill’s short-squeeze stunts. Just last month, GME sold 45 million shares, which blunted Gill’s initial rally that began when he simply posted a meme.
Based on his screenshots, Gill continues to own 5 million shares of GME stock and 120,000 call options that expire on June 21 at a strike price of $20.
GameStop earnings news
Management also hurt market sentiment by posting first-quarter earnings that had been slated for release next Tuesday.
GameStop posted adjusted earnings per share of $-0.12, which missed the consensus on Wall Street by 3 cents.
Revenue of $881.8 million also missed projections by $114 million and fell nearly 29% from a year ago.
Gamestop FAQs
GameStop is a retailer of video games and gaming merchandise through its approximately 4,400 branded stores worldwide. More than 2,900 of these locations are in the United States. The company was founded in Dallas, Texas, in 1984 as Babbage’s but changed its name to GameStop in 1999. The company had revenue of $5.93 billion in 2022 but has been falling over the past decade as physical game purchases have been declining in favor of digital downloads directly from hardware providers like Sony’s Playstation, Microsoft’s XBox, Nintendo and the Steam platform. The company trades under the GME symbol on the New York Stock Exchange.
In January of 2021, retail stock traders that organized on Reddit’s r/WallStreetBets forum realized that GameStop’s short ratio exceeded its float through the use of naked shorts. This information circulated until a group of traders decided to buy up the small amount of shares that were available. This caused the price to jump 1,500% in a famous short squeeze that month when short-sellers were forced to repurchase shares to close their short positions at higher and higher prices. Traders like Keith Gill walked away with millions of dollars in profits, while hedge funds like Melvin Capital and White Square Capital would eventually shutter due to extreme losses on their short positions. Traders on the Reddit forum made memes to proselytize their bets on GameStop, which helped the long trade proliferate. Later many of these same traders would glom onto new “meme stocks” like AMC Entertainment and Bed, Bath & Beyond.
In its most recent quarter, Q1 2023, GameStop saw revenue decline 10% YoY to $1.237 billion, which is pretty much par for the course. Much of the reduction in sales is due to declining game and collectible revenue, while hardware and merchandise sales have actually been increasing. GameStop has been making the most of the situation by cutting back on labor costs (SG&A) to the tune of $100 million YoY. These cost-cutting measures led GameStop to cut its net loss YoY by two-thirds to about $50 million. With more than $1 billion in cash on its balance sheet, so its backers think it has enough runway to become profitable again. Out of 12 recent analyst marks, the vast majority gave GME stock a “Hold” rating, while four analysts gave it a “Buy” or “Strong Buy”.
Ryan Cohen, the founder and former CEO of Chewy.com, made a large investment in GameStop in December 2020, preceding the stock’s epic short squeeze. Cohen became one of the most high-profile investors in the meme stock and later became Executive Chairman of the company. His tenure has resulted in a number of high-profile changes to management. A number of executives left GameStop once Cohen arrived, and he is said to have used his perch to install new executives from Chewy and Amazon in key positions. Cohen owns approximately 12% of the company.
Author
Clay Webster
FXStreet
Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.
