Gamestop extends rout on plan to sell up to 45 million shares
Its preliminary first-quarter net sales are between US$872M and US$892M
GAMESTOP shares tumbled towards a third day of declines after the company said it may sell up to 45 million shares, further paring the meme-fuelled rally that had sent the stock flying at the start of the week.
The shares plunged as much as 25 per cent in premarket trading after the company said it could sell class A stock in an open market agreement, and reported a drop in preliminary first-quarter net sales. The stock has largely reversed the rally that took it up 179 per cent to start the week.
Gamestop said on Friday (May 17) that its preliminary first-quarter net sales were between US$872 million and US$892 million, compared with US$1.2 billion in the year earlier period.
AMC Entertainment Holdings, which had joined in the recent volatility, fell 9.9 per cent in early Friday trading. Earlier in the week, AMC had taken advantage of its stock rally by swapping shares to reduce its debt, and saying it had completed an equity offering that had been previously announced.
Friday’s moves came as the trading intensity that powered this week’s rally eased significantly.
“Retail investors’ purchases of GME and AMC have seen a significant decline,” said Giacomo Pierantoni, head of data at Vanda Research.
While Gamestop experienced about US$5 million in inflows over the last two days, inflows into AMC were “nearly non-existent” on Thursday, he said.
The return to social media by Roaring Kitty, the online moniker of Keith Gill that fanned the retail buying frenzy in 2021, ignited the latest rally. The high volatility and heavy options activity gave Wall Street investors flashbacks of early 2021, when retail traders bet on the video game retailer and beleaguered movie theater chain and propelled both stocks to record highs.
However, conditions are not the same this time around. Options activity for Gamestop has declined, while activity around AMC shares has more than halved from Monday’s peak.
“It appears to me that the mini bubble is collapsing,” said Pierantoni. “When flows deviate from an exponential growth pattern and decline rapidly, it indicates that sentiment is quite fragile.”