GameStop slumps premarket after video game retailer says it will issue new shares

Investing.com -- GameStop's (NYSE:GME ) stock price fell by more than 9% in premarket US trading after the video game retailer said it would issue more shares despite posting a slide in second-quarter revenue.

The company, which has become known as a focal point of the "meme-stock" craze at the beginning of the decade, said that it would use the proceeds from issuing up to 20 million new shares to fund "general corporate purposes," including potential "acquisitions and investments in a manner consistent with our investment policy."

Analysts at Vital Knowledge noted that GameStop finished the quarter with a cash balance of roughly $4.2 billion, or about $12 per share. On Tuesday, shares in the group closed at $23.45.

"[I]nvestors are watching closely to see how all that money gets deployed (because the existing operating business is clearly in terminal decline)," the analysts said in a note to clients.

For the quarter ended on Aug. 3, GameStop reported revenue of $798.3 million, down from $1.16 billion in the year-ago period, in a sign that the firm is continuing to face pressures from a rise in online gaming purchases and sluggish performance at its brick-and-mortar stores.

Echoing comments from Chief Executive Ryan Cohen earlier this year, GameStop said it is focusing on "cost containment," including the closure of underperforming stores. It added that it is currently reviewing its store portfolio and noted that a "larger number" could be shuttered than it has "closed in the past few years."

Net income during the quarter came in at $14.8 million, swinging from a loss of $2.8 million a year earlier, thanks in part to a decline in GameStop's selling and administrative expenses.

GameStop's shares have seen heavy volatility this year, due in part to the return of stock influencer Roaring Kitty to X.com in May following a three-year hiatus away from social media. Roaring Kitty, the online name of financial marketer Keith Gill, was a major player in the surge of interest in so-called "meme stocks" like GameStop in 2021.

Yasin Ebrahim and Reuters contributed to this report.

 

Source: Investing.com