GameStop tumbles on capital raise plans after meme-stocks frenzy this week

A person browses games in a GameStop in Manhattan, New York

By Medha Singh

(Reuters) - Retail darling GameStop slumped 26% on Friday after the struggling videogame retailer said it would sell up to 45 million shares, taking advantage of the meme-stocks frenzy this week.

The company's shares logged their highest trading volume in three years so far this week, following a series of posts from Keith Gill's X account "Roaring Kitty", whose bullish calls on GameStop were a reason for the 2021 meme-stocks frenzy.

"If your stock is up, four fold or five fold in very short order, and you're hurting for cash, it makes a lot of sense to go to the equity market and raise some cash," Paul Nolte, senior wealth adviser at Murphy & Sylvest, said.

"From a corporate perspective, it makes a ton of sense, but it throws some cold water on the recent rally, because now you're diluting the existing shareholders."

GameStop's shares were last trading at $20.56, giving the company a market value of $6.3 billion. The company's market value rose to $19.8 billion earlier this week. The stock is up about 90% so far in May.

The company on Friday filed for a mixed-shelf offering, under which a firm can raise capital by selling different types of securities in one or more separate offerings.

GameStop also forecast first-quarter net sales to drop to between $872 million and $892 million, from $1.24 billion a year earlier.

The company, which largely relies on sales at its brick-and-mortar stores, has been hurt by customers' transition to buying video games and collectibles online.

GameStop said it expects first-quarter net loss to narrow from a year earlier as it benefits from cost cuts.

"Ultimately, the company must deploy its cash productively or continue to hope that it can issue more shares at elevated levels to forestall the inevitable," Wedbush analyst Michael Pachter said.

In a similar move, theater chain AMC completed a $250 million "at-the-market" share sale program on Monday. The company has also entered an equity-for-debt swap deal as it attempts to lower its debt.

AMC's shares, which hit a record low last month, fell 4% on Friday, taking its monthly gains to 52%.

(Reporting by Akash Sriram and Medha Singh in Bengaluru; Additional reporting by Ankika Biswas and Johann Cherian; Editing by Shilpi Majumdar and Shounak Dasgupta)