GameStop Slumps on Share Sale Plan Hours Before Gill Stream

(Bloomberg) — GameStop Corp.’s stock fell after the retailer unexpectedly released earnings and a plan to sell up to 75 million additional shares hours before Keith Gill’s highly anticipated return to YouTube drew in speculators.

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The stock had earlier sank as much as 31% to $32.03 as more than 150 million shares changed hands, triggering six halts for volatility within the first hour. Shares trimmed losses to 19% in the lead up to Gill’s YouTube stream.

The video-game seller’s first-quarter results, which were initially planned for Tuesday, showed slowing sales and a wider loss than analysts had expected. The extra shares, which can be sold into the market at prevailing prices, comes in addition to GameStop selling nearly $1 billion worth of stock last month.

The latest turns extend a volatile four-week stretch that has seen GameStop shares swing between $16.88 and $64.83, though the latest 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. That fueled a 167% rise in GameStop shares through Thursday’s close, adding $11 billion to its market value over that stretch. On Friday, investors were awaiting Gill’s first livestream in more than three years.

“I expect that there will be a binary response to what happens at noon,” said Peter Atwater, an adjunct professor of economics at William & Mary. “You’ll either see the crowd dive in or jump out because the expectations now are such that you either have frenzy and mania or panic.”

GameStop’s lackluster first-quarter results had been teased last month in the lead up to the company’s decision to sell 45 million shares. That program was also an at-the-market offering, in which its investment bank creates shares and sells them at market prices, with the proceeds added to GameStop’s balance sheet.

In a filing detailing plans to offer up to another 75 million shares, GameStop didn’t indicate any sales had begun. Based on Friday’s trading, selling the full amount could net roughly $2.7 billion to go along with the company’s May haul and the $1.08 billion it had in cash and equivalents at the end of the last quarter.

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Some market watchers see GameStop’s efforts to raise cash during another meme-stock frenzy as savvy, while others view it as exploitative of existing shareholders. If its bankers sell the full offering, it would increase the number of shares outstanding by more than 20%, further diluting investors. Such sales also typically put pressure on share performance in the near-term.

For Gill, the latest surge through Thursday’s close bolstered his apparent position in the company to more than $500 million, when accounting for common stock and call options, according to a Reddit post on June 6. His video stream could serve as yet another catalyst for the GameStop, as more than 30,000 YouTube users have asked to be notified when it starts at noon in New York.

“I have no choice, do I?” said Steve Sosnick, chief strategist at Interactive Brokers, when asked if he’ll be watching. “There’s a lot of mystery here, and until it’s like Scooby Doo, where they take the mask off the guy, we don’t know really what’s going on.”

Gill’s mysterious X posts, combined with portfolio checks on his DeepF—-ingValue handle on Reddit, sent investors piling into GameStop shares over the past four weeks. The stock’s surge over that stretch comes despite the stock sale and providing preliminary sales numbers that showed declining revenue.

GameStop’s stock price “is completely divorced from its business,” said Kim Forrest, founder and chief investment officer at Bokeh Capital Partners, who added that she won’t be among the thousands watching the “spectacle” of Gill’s return.

Bullish Speculation

Gill’s return to YouTube sparked further speculation that he’s bullish on GameStop, even though he has not said what he plans to discuss or whether he’ll disclose new positions. A YouTube post promoting his livestream on Friday had a disclaimer warning that the video would be opinion-based, along with familiar legalese saying past performance is not indicative of future results — something that hadn’t appeared in prior posts from the account.

“This YouTube channel is not under any obligation to update or correct any information provided in these videos,” the disclaimer read in part. “Statements and opinions are subject to change without notice. No compensation is received by this YouTube channel for the opinions expressed.”

Investing in meme stocks became a frenzy in 2021 as cash-rich retail investors cooped up during the height of the pandemic bet against short-selling hedge funds, sending equity markets soaring. The mania delivered huge losses to the likes of Gabe Plotkin’s Melvin Capital Management, which was forced to shutter, and rich returns to those who placed bets early in the frenzy before stocks like GameStop came crashing down.

Earlier this week, Gill shared a screenshot on Reddit that appeared to show him owning $116 million of GameStop shares. A position that large would make Gill one of the company’s five biggest investors. It’s also more than six times the number of shares his account showed in an April 2021 post, the last time it was active on Reddit, when accounting for a four-for-one stock split.

Gill profited handsomely from investing in the beleaguered video-game retailer through 2020 and 2021. His recent social media activity — beginning with the May 12 X post featuring an image of a video gamer leaning in — fueled anticipation that he was returning to the market, driving the share price to more than triple in a matter of days.

The posts and the market’s reaction to them have sparked conversations over whether Gill’s social media actions could amount to market manipulation. Online brokerage E*Trade was considering banning Gill from its platform, in part due to his influence over the stock, the Wall Street Journal reported earlier this week.

“What the government would need to show to pursue a market manipulation theory is manipulative intent,” said Pillsbury partner David Oliwenstein, a member of the firm’s Corporate Investigations & White Collar Defense team and former senior counsel in the SEC’s Market Abuse Unit.

“It’s safe to assume that the SEC will at least take a hard look at the trading,” Oliwenstein said.

–With assistance from Carmen Reinicke and Subrat Patnaik.

(Updates with share movement.)

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