GameStop pockets record $2.1 billion from snap share sale that tanked the stock

And GameStop has 38-year-old social media trader Keith Gill to thank for it.  

In anticipation of a looming short squeeze triggered by last week’s definitive return of Roaring Kitty, a soaring stock price gifted the company a perfect opportunity to unload 75 million shares at an average price of $28.50 each on a market all too desperate to get their hands on more. 

While it may have ruined Gill’s bid to become the first person to become a billionaire on paper during a livestream, it’s a life preserver for the struggling brick-and-mortar games retailer.

Due to the terms of the offering, the loss-making company enjoys widespread discretion to do what it sees fit with the company’s windfall gain—no strings attached.

It was a second major victory for chairman and CEO Ryan Cohen after a court dismissed an unrelated lawsuit hanging over the activist investor’s head.

“GameStop intends to use the net proceeds…for general corporate purposes, which may include acquisitions and investments,” the company said in a statement on Tuesday, a common boilerplate phrase that grants management broad scope.

Cohen can thank his lucky stars that Roaring Kitty, alias Keith Gill, reemerged out of the blue three years after the latter celebrated an epic victory over Wall Street hedge funds like Melvin Capital, which got burned speculating on a drop in the price of GameStop shares.

Communicating at first entirely through memes, Gill signaled he was back to finish the job on May 13.

On June 2, he uploaded to Reddit, where he posts under the account DeepFuckingValue, a screenshot of his E*Trade account showing he had quietly amassed a long position in stocks and options worth over $181 million. 

While this may have reduced GameStop to little more than the financial equivalent of a ball of yarn, Cohen seized on Roaring Kitty’s return from retirement to make hay. 

Doubles the size of the company’s assets

Together with a stock sale in May that saw 45 million new shares issued—only days after the cryptic memes were first posted—GameStop padded its accounts with $3 billion in cash. 

To put this massive haul into context, its net cash only amounted to roughly $1 billion at the end of the first quarter, and the size of its balance sheet totaled just $2.6 billion.

In other words, the company quadrupled its cash pile while more than doubling its assets in the span of just four weeks.

Citron is no longer short $GME. It’s not because we believe in a turnaround for the company fundamentals will ever happen, but with $4 billion in the bank, they have enough runway to appease their cult like shareholders. Despite Wedbush setting an $11 target today, we respect the…

— Citron Research (@CitronResearch) June 12, 2024

One of the short-sellers burned by Gill three years ago in 2021 is hedge fund manager Andrew Left.

He confirmed just last week he was back to placing bearish bets on the stock, but news that GameStop lined its pockets prompted him to now think twice and watch events unfold from the sidelines.

“Citron is no longer short GME,” his firm wrote. “It’s not because we believe in a turnaround for the company fundamentals will ever happen, but with $4 billion in the bank, they have enough runway to appease their cult-like shareholders.”

Needless to say, the cash infusion is a massive boon for a company that operates over 4,000 stores worldwide but is experiencing a technological shift.

GameStop specializes in selling physical copies of video games, but more publishers are considering eliminating the format in favor of licensing them as downloads from the cloud.

Sony and Microsoft, the respective manufacturers of the PlayStation and Xbox, already offer cheaper next-gen consoles that lack optical media drives entirely.

France’s Ubisoft, the games publisher behind the Assassin’s Creed and FarCry franchises, says people will need to accept that in the future, they won’t own their games, just like they don’t own their movies anymore now that there’s streaming. 

“Gamers are used to—a little bit like DVD—having and owning their games,” Ubisoft exec Phillipe Tremblay told GamesIndustry.biz earlier this year. “That’s the consumer shift that needs to happen.”

If companies like Ubisoft eventually only sell their wares through the cloud, what purpose will GameStop stores still serve?

Fortunately for Cohen, many hard-core gamers still viscerally oppose this trend.