GameStop plans of cash in on Reddit lowered its value of shares

Video-game retailer GameStop has recently revealed its plan on selling 3.5 shares to speed up the transition to the e-commerce model. But right after its announcement, the company shares have started to fall immediately.

GameStop‘s shares have started to fall right after an announcement stating that it may sell up to $1bn worth of stock as the company wants to cash in on Reddit surge. The video-game retailer actually intended to profit from the 900% surge in its shares from a rally of Reddit this year but it seems its intend has ended up in the opposite way.

To speed up the proceeds of shifting the company to e-commerce, GameStop revealed that it was going to sell its shares up to 3.5m under the leadership of Ryan Cohen, who is the biggest shareholder and one of the board members of the company. So right after this announcement, the company’s shares suddenly fell in pre-market trading. But not after long, 1.9% of fall has been recovered, which is close to $186.95, as well.

The chairman of private equity investor Great Hill Capital, Thomas Hayes said that:

“The positive story is they’ll have more money to invest in their digital revolution, and the negative story is it’s massive dilution and would likely mean the stock faces some near-term pressure.”

Back in January, GameStop was at the very center of a trading frenzy that increased its value to almost $34bn. It was mostly because of amateur investors joining ranks on online trading conversations on social media to drive up stocks, which had been bet against by hedge funds. One of that conversations had been in Reddit’s r/wallstreetbets, and other companies, such as American Airlines and AMC, also joined among the Reddit madness to sell shares in order to help fund their recoveries which the pandemic caused as well.

The brokerage firm Telsey Advisory Group’s analyst, Joseph Feldman, also made a statement to explain this situation. “A lot of interested parties have been asking when GameStop would do something like this. The stock has remained elevated so the company is taking advantage of the access to capital,” he said.

And in March, the video-game retailer GameStop expressed its consideration on expanding its share sale to $100m. Actually, it had first intended and announced back in December to do so but couldn’t manage because of the regulatory restrictions.

So GameStop has presented to the US Securities and Exchange Commission its previous plan again as a new offering with the expectation of bringing the company back to $670m than Thursday’s closing price of $191.45. On the other side, companies don’t have to stick to any price and can sell their stocks for a long time as well since the market programs allow them so.

According to Refiniv data, the 3.5m shares of GameStop seem to represent its stock’s 5%, and the target of company shares’ median price still stands at $25 as well. And investment bank Jefferies’s research part also increased GameStop stock’s price target to $175 from $15 last month as a result of switching the company’s strategy to online sales due to the offering of the sales agent.