Shares in GameStop soared as much as 23% on Thursday after the video games retailer announced plans to strengthen its balance sheet by cutting debt early. With cash, the country said goodbye to its $1.5 billion long-term debt, which was due to expire at the end of this month. In addition to selling the debt on the open market, gameStop will also launch an on-market offering that will allow the company to raise cash by selling its shares on the open market.
The direct effect of this announcement is that GameStop’s stock has seen a strong upswing since March 30. Since early April, gameStop’s (GME) stock has been on a downward spiral, and continues to decline, after the company announced plans to sell its $1.5 billion long-term debt and appoint a chief executive. The announcement today to retire the Chairman and Chief Executive Officer (CFO) and appoint a new Chief Financial Officer has a major positive effect.
There is also a shake-up – eight directors on the board of GameStop will step down in June, including Reggie Fils-Aime.
GameStop’s stock has bottomed out in recent months due to the myriad problems the retailer faces. The share price has hovered around $40 a share, reaching a high of $44.74 at the moment, with the vast majority of the gains made in recent weeks.
After enjoying a market capitalization of nearly $10 billion at the height of the Wii phenomenon, GameStop recovered to its former glory, posting an average annual profit of $1.5 billion in the second half of last year. But it is not as successful as it was in April, when it posted a net loss of more than $2.2 billion in 2014.
Some analysts have pointed out that the recent rise in GameStop’s share price is the result of a massive short squeeze bubble that will eventually burst. Some analysts say there is reason to believe that its long-term health is in much better shape than the stock’s slump last year suggested.
To understand GameStop’s current IPO history, one has to go back to August, when investor Ryan Cohen bought into a short position in the company’s stock through Robinhood, a popular short-term trading platform. Robin Hood now allows users to buy shares in affected stocks, and users can buy up to 10,000 shares of a stock at a time for as little as $1,500, according to its website. This week, gameStop has begun a debate about how the market might be disconnected from reality and how small traders can use options to push up share prices.
The video game retailer could have benefited from an epic short squeeze fueled by a group of Reddit traders that surged to a record high of $483 and rose again on Tuesday to an all-time high of $488. The stock’s history has become an obsession since Tuesday, when it nearly doubled.
GameStop announced earlier this month that it would launch a stock offering on the market that would allow the company to sell up to 3.5 million shares on the open market as it pleases. This type of offering allows GameStop to take advantage of the upside volatility of its share price while limiting volatility. Given the volatility of the stock in recent months, its initial reaction has shifted in recent days. In post-market trading, Gamestop shares fell 14%, or $156.89, to their lowest level in more than a year and a half.
On the other hand, the company’s improved e-commerce offerings could boost its long-term earnings potential and the value of the stock to investors.
At the close of trading on Tuesday, GameStop (NYSE: GME) announced that it was cutting its quarterly dividend. The stock’s early bulls saw it as an undervalued pick, while some analysts scratched their heads at its steep valuation. The shift to digital game downloads has accelerated in recent years, with Gamestop struggling as much as the rapid growth of online gaming platforms like Amazon (NASDAQ: Amazon).
The stock responded by losing nearly a third of its value last year, bringing it to levels last seen in early 2003. The S & P 500 fell more than 1.9 percent on Tuesday, ending a period of volatile trading that sent the index down more than 3 percent. It was a move that rattled the stock and rattled the fading video game provider’s remaining investors.
The sale came as Wall Street was consumed by a day of bidding for a handful of stocks, from battered video game retailer GameStop to large hedge funds forced out of business by losses. Traders appeared to be mostly retail investors focused on a few stocks. However, it turned out that some large firms were betting against the company in the form of so-called short selling.
When GameStop filed its disclosure statement with the US Securities and Exchange Commission on April 5, the retailer managed to sell a certain amount of its long-term debt at a price of $1.5 million.
