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 8:18AM

Updated 5/17/24 8:51AM

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.

US stocks end volatile week on a positive note

The S&P 500 and Nasdaq 100 both ended well in the green, while the Russell 2000 suffered a loss.

Toby Bochan7m

Matt Phillips2h

Margins, and selling the news: analysts look to explain Oracle’s tumble

The somewhat counterintuitive tumble in Oracle shares continued into afternoon trading Friday, despite Wall Street analysts’ more or less favorable reaction to Oracle’s investor day presentation Thursday, where executives said the company’s AI cloud business would eventually sport margins of between 30% and 40%, far better than the figures reported by The Information back on September 7.

And yet, the stock is on its way to its worst day in the last six months. What gives?

Gil Lauria, who covers Oracle for D.A. Davidson & Co. — who has it at “hold” with a $300 price target — has a theory, telling Sherwood News:

“Investors are disappointed that the entire growth acceleration in Oracle is from the Oracle Cloud Infrastructure business, and that Oracle expects the rest of the business to grow low single digits.

The other disappointment came from Oracle acknowledging that the GPU rental business only had 30-40% gross margins, far lower than the 80% gross margins for the rest of the business.”

Other analysts we’ve chatted with on background say they’re not convinced the margin story is the source of today’s slump, suggesting the also plausible explanation that the drop might just be a sign traders bought the stock ahead of the presentation to analysts on Thursday anticipating positive announcements, and now they’re selling simply selling the news.

Analysts generally like what they heard from Oracle, but shares are down

Gil Lauria, who covers Oracle for D.A. Davidson & Co. — who has it at “hold” with a $300 price target — has a theory, telling Sherwood News:

“Investors are disappointed that the entire growth acceleration in Oracle is from the Oracle Cloud Infrastructure business, and that Oracle expects the rest of the business to grow low single digits.

The other disappointment came from Oracle acknowledging that the GPU rental business only had 30-40% gross margins, far lower than the 80% gross margins for the rest of the business.”

Jon Keegan5h

Analysts generally like what they heard from Oracle, but shares are down

The big news out from the Oracle AI World conference was broadly positive: that margins on cloud infrastructure can be as high as 35%, and that the company predicts $166 billion in infrastructure revenue by 2030.

And in the wake of that news, today UBS raised its price target for Oracle shares to $380 from $360, saying they are undervalued.

But investors appear to have some concerns about Oracle’s huge capex plans, which are fueled by huge AI infrastructure deals with OpenAI and Meta, as shares dropped over 7% in Friday trading.

Analysts have pointed to Oracle’s high cash burn as it pursues its AI build-out and potential financing needs as flies in the ointment that could blunt the impact of the company’s strong longer-term growth forecasts.

On Friday, Jeffries analysts wrote:

“Questions remain about ORCL’s capex requirements to meet growing demand, as there was no forward-looking commentary on capex at the Analyst Day. Capex will need to ramp in line with [Oracle cloud infrastructure] revenue growth, raising concerns about ORCL’s financing options to support this expansion.”

However, if that’s the reason why the stock is getting hit today, it would mark a distinct change in how investors are evaluating the AI trade. Companies have tended to be increasingly rewarded for their aggressive capex commitments to enhance the boom, based on optimism that investments in this would-be revolutionary technology will bear fruit.

Friday’s dip comes on the back of a strong run leading up to the yesterday’s investor conference, fueled by a flurry of AI headlines. Oracle shares have gained over 18% in the past three months and more than 70% so far this year, well outpacing the Nasdaq’s approximately 7% and 16% rise over the same time periods.

Matt Phillips6h

AST SpaceMobile drops after Barclays cuts rating to “underweight”

AST SpaceMobile, which provides cellular services from space, dove in early trading after Barclays analysts cut their rating on the shares to “underweight” (essentially a sell) from “overweight” (or a buy), citing “excessive” valuation on the still money-burning company. The fact that analysts went from “buy” to “sell” — with no momentary stop at a “hold” or “neutral” rating — makes it a fairly rare “double downgrade.”

They wrote:

“Valuation has run ahead of fundamentals... In our last update, we increased our price target from $38 to $60 as we took a more constructive view on pricing; we found it supportive that TMUS/Starlink launched a text only service for $10 per month and believe that AST products which will be richer (text, call, broadband) could see higher prices points. Since then the stock price has doubled from $48 to $95.7.”

With the shares up almost 120% over the last month through Thursday, and a price-to-forward-sales ratio of 140x — the Nasdaq Composite is around 5x — the stock might be due for a cooling-off period.