GameStop plans share sale to cash in on Reddit rally

GameStop plans share sale to cash in on Reddit rally

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GameStop Corp (NYSE:GME) is becoming the latest entity to cash in on its soaring share price caused by a Reddit-inspired rally earlier this year after the video game retailer announced plans to sell up to US$1bn worth of stock. The company, which in late January saw its shares rocket in value after a mob of retail traders inspired partially by the online community r/wallstreetbets pile into the stock in a bid to bankrupt several hedge funds shorting the shares, said late on Monday that it will sell up to 3.5mln shares and use the proceeds to accelerate its shift towards an ecommerce business model, part of a turnaround plan spearheaded by activist investor and major shareholder Ryan Cohen. READ: GameStop, AMC Entertainment and the democratisation of investing: meet the Reddit users turned traders The share sale will represent around 5% of the company’s outstanding share capital. GameStop is likely looking to take advantage of the lingering high value of its shares, which on Monday closed at a price of US$190.59, down from a high of around US$347 during the trading frenzy but still around 1,004% higher than the US$17 level at the start of the year and giving it a current market cap of just over US$13bn. In a note on Monday night, analysts at S&P Global Ratings said following the share sale they expected GameStop’s cash balances to be “in excess of its funded debt, which should provide it with additional runway to complete its business transformation”. “GameStop has undergone significant management changes over the last several months in its efforts to pivot toward a business model that supports its digital gaming strategies”, said analysts at the credit rating agency, however, they also warned that “substantial risks” remained for the strategy given the company’s “significant brick-and-mortar store footprint”. “Still, the recently released next-generation gaming consoles continue to support physical games and we view GameStop as well positioned to benefit from the demand for software and accessories for these new consoles in the near-term. We believe this dynamic, along with the proceeds from its share offering, should provide it with additional time to adapt its business model”, S&P added. Shares in GameStop were down 1.1% at US$184.89 in pre-market trading in New York on Tuesday.

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