GameStop Corp. (NYSE:GME) faced a sharp decline as it opened the possibility of selling additional equity, extending a downturn that erased much of the recent meme-driven surge, which saw the stock skyrocket by 271% earlier in the week.
The stock plummeted by 20% on Friday after the video game retailer disclosed a potential agreement to offer up to 45 million shares and reported a preliminary drop in first-quarter net sales. Over the span of three days, GameStop has seen over $8 billion in market value vanish, with its weekly gains diminishing to 27%.
According to Wedbush analyst Michael Pachter, GameStop’s move to issue shares at a premium amidst the recent price surge is a strategic attempt to bolster its reserves while grappling with operational challenges and ongoing losses.
In its Friday announcement, GameStop revealed that its preliminary first-quarter net sales ranged between $872 million and $892 million, a decline from $1.2 billion in the same period last year.
Meanwhile, AMC Entertainment Holdings Inc., which had also been swept up in the recent market volatility, experienced a 5.2% decline. Earlier in the week, AMC had leveraged its stock rally to reduce its debt through a share swap and announced the completion of a previously announced equity offering.
The subdued trading activity observed on Friday marks a notable shift from the heightened volatility seen earlier in the week. Giacomo Pierantoni, head of data at Vanda Research, noted a significant decrease in retail investors’ purchases of GameStop and AMC shares, with inflows into both stocks declining notably.
The return of “Roaring Kitty,” the online persona of Keith Gill, who fueled the retail frenzy in 2021, sparked the recent rally. However, market conditions differ from the earlier episode, with options activity for GameStop waning and AMC’s activity halving from its peak on Monday.
Pierantoni suggests that the recent downturn in flows indicates fragility in sentiment and hints at the potential collapse of the recent speculative bubble. As flows deviate from exponential growth and decline rapidly, it signals a shift in sentiment among investors.
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