(Bloomberg) — Shares of GameStop Corp. fell after the retailer unexpectedly released earnings and a plan to sell up to 75 million additional shares hours before Keith Gill’s much-anticipated return to YouTube drew speculators.
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Shares had already fallen as much as 31% to $32.03 as more than 150 million shares changed hands, triggering six volatility halts in the first hour. Shares narrowed losses to 19% ahead of Gill’s YouTube broadcast.
The video game seller’s first-quarter results, initially planned for Tuesday, showed slowing sales and a bigger loss than analysts had expected. The extra shares, which can be sold on the market at prevailing prices, come on top of the sale of nearly $1 billion in GameStop shares last month.
The latest twists and turns extend a volatile four-week stretch that has seen GameStop shares fluctuate between $16.88 and $64.83, although the most recent strength has been driven by posts associated with Gill’s social media handles.
Better known as “Roaring Kitty,” the meme stock influencer returned to X with a cryptic post on May 12. This fueled a 167% rise in GameStop shares through Thursday’s close, adding $11 billion to its market value in that time. On Friday, investors awaited Gill’s first live broadcast in more than three years.
“I hope there is a binary answer to what happens at noon,” said Peter Atwater, associate professor of economics at William & Mary. “You will see the crowd dive or jump because the expectations are now so high that you will have frenzy and mania or panic.”
GameStop’s weak first-quarter results were released last month, ahead of the company’s decision to sell 45 million shares. This program was also a market offering, where its investment bank creates shares and sells them at market prices, with the proceeds added to GameStop’s balance sheet.
In a document detailing plans to offer an additional 75 million shares, GameStop did not indicate that any sales had begun. Based on Friday’s negotiations, the full value sale could yield about $2.7 billion, adding to the amount raised by the company in May and the $1.08 billion it had in cash and cash equivalents at the end of the last quarter.
Some market watchers consider GameStop’s efforts to raise money during another meme stock frenzy to be smart, while others consider them an exploitation of existing shareholders. If its bankers sold the entire offering, it would increase the number of shares outstanding by more than 20%, further diluting investors. These sales also often put pressure on stock performance in the short term.
For Gill, the latest raise through Thursday’s close bolstered his apparent position in the company to more than $500 million when accounting for common shares and stock options, according to a June 6 Reddit post. the GameStop, as more than 30,000 YouTube users asked to be notified when it kicks off at noon in New York.
“I don’t have a choice, do I?” said Steve Sosnick, chief strategist at Interactive Brokers, when asked if he will be watching. “There’s a lot of mystery here, and until it’s like Scooby Doo where they take the guy’s mask off, we don’t really know what’s going on.”
Gill’s mysterious X posts, combined with portfolio checks on his DeepF—-ingValue Reddit handle, have caused investors to pile into GameStop shares over the past four weeks. The rise in shares during this period comes despite the sale of shares and the provision of preliminary sales figures that showed a decline in revenue.
GameStop’s share price “is completely divorced from its business,” said Kim Forrest, founder and chief investment officer of Bokeh Capital Partners, who added that she won’t be among the thousands who will watch the “spectacle” of Gill’s return.
Bullish speculation
Gill’s return to YouTube has sparked further speculation that he is bullish on GameStop, although he has not said what he plans to discuss or whether he will disclose new positions. A YouTube post promoting his live stream on Friday had a disclaimer warning that the video would be opinion-based, along with familiar legal language saying that past performance is not indicative of future results – something that did not appear in previous posts on the account.
“This YouTube channel is under no obligation to update or correct any information provided in these videos,” read part of the notice. “Statements and opinions are subject to change without notice. No compensation is received by this YouTube channel for the views expressed.”
Investing in meme stocks became a frenzy in 2021 as cash-rich retail investors flocked during the height of the pandemic and bet against short-selling hedge funds, sending stock markets soaring. The mania generated huge losses for companies like Gabe Plotkin’s Melvin Capital Management, which was forced to close, and rich returns for those who placed bets at the start of the frenzy, before stocks like GameStop collapsed.
Earlier this week, Gill shared a screenshot on Reddit that appeared to show him owning $116 million worth of GameStop shares. Such a large position would make Gill one of the company’s top five investors. It’s also more than six times the number of shares his account showed in an April 2021 post, the last time he was active on Reddit, when accounting for a four-for-one stock split.
Gill profited handsomely from investing in the beleaguered video game retailer during 2020 and 2021. His recent social media activity — starting with the May 12 X post featuring an image of an approaching video game player — fueled expectations that he was returning to the market, causing the share price to more than triple in a matter of days.
The posts and the market’s reaction to them sparked discussions about whether Gill’s actions on social media could amount to market manipulation. Online brokerage E*Trade was considering banning Gill from its platform, in part due to his influence over stocks, the Wall Street Journal reported earlier this week.
“What the government would need to demonstrate to pursue a theory of market manipulation is manipulative intent,” said David Oliwenstein, a partner at Pillsbury, a member of the company’s Corporate Investigations and White Collar Defense team and former senior counsel in the Pillsbury Unit. SEC Market Abuse.
“It’s safe to assume the SEC will at least look closely at the trades,” Oliwenstein said.
–With assistance from Carmen Reinicke and Subrat Patnaik.
(Updates with share movement.)
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