Please ensure Javascript is enabled for purposes of website accessibility

Why GameStop Shares Tanked Wednesday

By Howard Smith - Mar 24, 2021 at 10:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A highly anticipated earnings report fell short for the popular meme stock.

What happened

It's been two months since followers of Reddit's WallStreetBets forum turned GameStop (GME -3.56%) into a favorite trading vehicle for retail investors. Last night, the video game retailer reported its first quarterly earnings since volatility in the stock rocketed, and investors -- and traders -- are showing displeasure today. As of 9:55 a.m. EDT, GameStop shares had sunk 18% on the report and associated news. 

So what

While earnings and revenue for the company's fourth quarter ended Jan. 30 slightly missed analyst estimates, investors were more interested in what the company was going to say about its business transformation to using digital channels. The company didn't make any impressive waves on that topic. Maybe more important was something the company didn't say in its release, but did include in an SEC filing. 

red down arrow over $100 bills indicating losing money

Image source: Getty Images.

Now what

GameStop reported that its e-commerce sales jumped 175% in the holiday-impacted quarter. Online sales made up 30% of total sales for the full fiscal year. The transformation away from its brick-and-mortar business model is mainly what retail traders believe can help justify the sharp advance in the company's share price. 

However, in an SEC filing, the company revealed that it may need to raise additional capital to help fund that transformation. Specifically, the company said that "potential costs related to the acceleration of future transformation initiatives" may be funded by sale of additional company equity. 

With the stock closing around $180 per share Tuesday, investors may be wondering why the company didn't take advantage of the spike to $350 per share if it believed it would need to raise capital. Investors are in turn knocking shares down even further today. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GameStop Corp. Stock Quote
GameStop Corp.
GME
$95.66 (-3.56%) $-3.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.