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GameStop Rout Hits $8 Billion After Stock Sale Plan
(Bloomberg) — GameStop Corp. fell after filings opened the door for it to sell more shares, delivering a rout that erased most of the meme-fueled rally that sent shares soaring 271% earlier in the week.
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Shares plunged 20% on Friday as the video game retailer entered into a pact to potentially offer up to 45 million shares and reported a drop in preliminary first-quarter net sales. The stock lost more than $8 billion in value during the three-day pullback as its weekly advance slowed to 27%.
“GameStop is capitalizing on a recent stock price surge by prudently issuing shares at a premium, providing itself with a greater level of reserves as it struggles to refocus its business and reverse ongoing operating losses,” Wedbush analyst Michael Pachter, who has an underperform rating on the stock, he wrote in a note to clients.
GameStop said Friday that its preliminary first-quarter net sales were between $872 million and $892 million, compared with $1.2 billion in the same period a year ago.
AMC Entertainment Holdings Inc., which joined in the recent volatility, fell 5.2%. Earlier in the week, AMC took advantage of its stock rally by swapping shares to reduce its debt and saying it had completed a stock offering that had been previously announced.
Read more: AMC Takes Advantage of Meme Stock Moves to Cut $164 Million in Debt
Friday’s moves came after the trading intensity that drove this week’s rally eased significantly. “Purchases of GME and AMC by retail investors have seen a significant decline,” said Giacomo Pierantoni, head of data at Vanda Research.
While GameStop has seen about $5 million in inflows over the past two days, inflows into AMC were “almost nonexistent” on Thursday, he said.
The return to social media of “Roaring Kitty,” Keith Gill’s online nickname that fueled the retail shopping frenzy of 2021, triggered the latest rally. High volatility and strong options activity gave Wall Street investors flashbacks to early 2021, when retail traders bet on the video game retailer and the beleaguered movie theater chain and drove both stocks to record highs.
However, the conditions are not the same this time. Options activity for GameStop has slowed, while activity around AMC shares has more than halved from Monday’s peak.
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“It seems to me that the mini-bubble is collapsing,” Pierantoni said. “When flows deviate from an exponential growth pattern and decline quickly, it indicates that sentiment is quite fragile.”
–With assistance from Michael Msika and Stephen Kirkland.
(Updates with the latest negotiations and comments.)
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