GameStop store entrance at Rego Center shopping mall, Queens, New York

(Photo by Lindsey Nicholson/UCG/Universal Images Group via Getty Images)

GameStop says its stock went up for no good reason and it's trying to take advantage

We had to ask: What took them so long?

5/17/24 9:18AM

Updated 5/17/24 9:51AM

Shares of GameStop are down more than 20% in the pre-market as the company joins AMC in using this period of market exuberance to improve its financial position.

The company announced plans to work with Jefferies to sell up to 45 million shares on the open market to raise money. As part of the prospectus supplement, the firm comments on the recent frenzy (emphasis added):

During such period, we did not experience any material changes in our financial condition or results of operations that would explain such price volatility or trading volume. Furthermore, since January 2021 through the date hereof, the market price of our common stock has seen extreme price fluctuations that do not appear to be based on the underlying fundamentals of our business or results of operations. Investors that purchase shares of our common stock in this offering may lose a significant portion of their investments if the price of our common stock subsequently declines.

One question is, what took them so long? It’s the duty of management to obviously run the company well, be operationally sound, look for efficiencies on the cost side and drive growth on the revenue side, and all that. But it’s also their responsibility to make shrewd financing decisions and, perhaps in this case, to have been better prepared for lightning to strike twice.

Both AMC and GME enjoyed parabolic rises in their share prices to open this week; by Tuesday, AMC had taken advantage by issuing more equity to reduce debt. GME may be only able to get in on the game now because it was somewhat constrained by a so-called “blackout period” ahead of the release of its quarterly earnings report, which had been scheduled for June 7. During blackout periods, bringing offerings to market is generally a no-no. One way to get around this is to come forward with your results early.

As such, GameStop also released preliminary unaudited quarterly results for the three months ending May 4, 2024. Though net sales shrank roughly 30% year-on-year, the net loss actually slimmed by about 35% to an estimate of around $32 million for the quarter versus the prior year. Getting these figures together was likely the bottleneck delaying this offering from coming to market.

Seems imprudent NOT to have a standing shelf registration/ATM if you’re a shitco financier
— Rod Alzmann (@RodAlzmann) May 14, 2024

A second question revolves around whether GME will miss their window of opportunity. This type of frenzy doesn’t come around every day, and in the very short term, both price and volumes are not trending in the right direction.

We can infer that management didn’t necessarily feel an urgent need to sell shares at the start of the month, when the stock was trading around $11 and roughly 4 million shares changed hands, on average, during the month of April.

Just before this offering, shares were trading around $30 in the pre-market, and they’re now much closer to $20. Volumes traded peaked on Tuesday at more than 200 million shares, and dipped to 76 million by Thursday. Options traders who pre-positioned for massive gains in GameStop appear to have been much more nimble and successful in taking advantage of this rally than management.

UPDATE: Added details around “blackout period” constraints ahead of earnings reports.

Max Knoblauch & David Crowther11h

Nike’s China business declines for seventh straight quarter, stock sinks as soft guidance outweighs Q3 earnings beat

Sportswear kingpin Nike reported results for its third quarter, which ended in February, after the bell Tuesday. At a headline-level, the fiscal Q3 numbers were pretty solid, with Nike reporting:

Earnings of $0.35 per share, comfortably above the Wall Street consensus of $0.29 per share compiled by FactSet.
$11.28 billion in total revenue, roughly in line with the $11.26 billion estimate.

However, weakness in China and a revenue forecast that implies sales will continue to drop are weighing on the shares, which are down more than 9% in early trading on Wednesday.

On the earnings call, management said that revenue is expected to drop 2% to 4% in the coming quarter, and that overall they "expect revenues to be down low-single-digits versus the prior year, with gains in North America offset by declines in Greater China." That's a disappointment to analysts, who were anticipating 2% growth in the coming quarter, and even more in the latter stages of the year, per Bloomberg.

Nike’s sales in China — where the company earns about 15% of its revenue — fell 7% to $1.62 billion. That’s its seventh straight quarter of sales declines in the market, though this quarter’s was less than feared. The company had issued weak guidance for this quarter considering continued softness in the region.

“This quarter we took meaningful actions to improve the health and quality of our business,” said Nike CEO Elliott Hill. “The pace of progress is different across the portfolio and the areas we prioritized first continue to drive momentum.”

Nike shares are trading near decade lows this month, as tariffs continue to weigh on profits and shipping costs rise amid the war with Iran. As of Tuesday’s close, the stock was down 17% year to date.

Luke Kawa, Tasha Matsumoto

11h

Stocks end worst quarter since 2022 with best day since May

Optimism that the end of the war may be near sent stocks surging.

Max Knoblauch13h

Oil-sensitive travel stocks pop following Iran state media reporting on potential war resolution

Travel stocks are surging on Tuesday as oil prices fall following reports from Iranian state media that President Masoud Pezeshkian said the country has “the necessary will to end this war,” but would only do so with guarantees that “prevent the recurrence of aggression.”

The war has sent oil prices and refining margins surging this month, causing airlines and cruise lines to cut profit forecasts despite reported high demand.

Following Tuesday’s update, shares of the big four US airlines (Delta Air Lines, United Airlines, American Airlines, and Southwest Airlines) all climbed, along with smaller rivals including JetBlue. US airlines have stopped fuel hedging in recent years, increasing their exposure to upward swings in oil prices.

Cruise stocks also rallied, with Carnival and Norwegian up more than 6% and Royal Caribbean up about 5%.

J. Edward Moreno16h

The FDA is expected to lift restrictions on certain peptides, the NYT reports

The Food and Drug Administration is expected to lift restrictions on certain peptides, allowing the experimental, often injectable substances to be sold by compounding pharmacies, The New York Times reported Tuesday.

The potential move was previously reported by The Wall Street Journal, and teased by Health Secretary Robert F. Kennedy Jr. on the “Joe Rogan Experience” podcast in late February.

Peptides have boomed in popularity recently, with search interest for “peptides” surpassing “ozempic” this month. Many of them are currently understudied and not approved for human use, a rule consumers are able to bypass by purchasing them from suppliers that sell them for, ostensibly, research purposes only.

As reports of the FDA changing its stance of peptides mount, consumer health companies like Hims & Hers and Superpower have been getting ready to roll out their peptide offerings as soon as they get the FDA's blessing.

The peptide gold rush: How impending deregulation could supercharge a shadow industry

Matt Phillips17h

Memory stocks bounce as Bernstein analyst calls TurboQuant fears “overdone”

Memory stocks rose Tuesday, after Bernstein analysts called the recent panic over Google’s TurboQuant AI algorithm “overdone.”

Bernstein analyst Mark Newman wrote:

“[Hard disk drive] and Memory stocks have sold off significantly due in part to fears from Google’s TurboQuant report. This however, should have zero impact on HDD demand and negligible impact on NAND demand. Given the stock sell-off we see this as an attractive entry point for Seagate Technology Holdings, Western Digital and Sandisk’s and upgrade WDC to Outperform.”

All three stocks were up early Tuesday, as was memory chip maker Micron.

Today’s rally stands in stark contrast to the pummeling these shares have endured over the last week, after Google Research published a technical paper on March 24 detailing its TurboQuant AI algorithm, which compresses the amount of data associated with AI operations without affecting the accuracy of AI models.

That was seen as a threat to surging AI demand for memory storage, which has supercharged prices for memory chips and memory-related stocks over the last year.