As shares of GameStop (GME -6.70%) soared to almost $400, then dropped before rebounding to a level that currently values the company at over $12 billion, investors wondered why it wasn't taking advantage to raise capital on shares that began the year under $20. Today, the company answered by announcing a stock sale, sending shares down 13.3% as of 9:40 a.m. EDT.
GameStop said in a Securities and Exchange Commission filing that it will raise up to $1 billion by selling as many as 3.5 million new shares of common stock. There's no set schedule for selling the shares, which the company said will be offered "from time to time" using an "at the market" equity offering program. At the current share price of about $170, selling the full allocation would equate to about $600 million in new capital for the company.
Investors aren't happy with the potential dilution, it seems. Shares are falling on the news, even though the company also gave investors some good news on its sales results today.
The enthusiasm for GameStop with retail investors rests on the thinking that the company will successfully transition to an e-commerce business model. The company said proceeds from its potential stock sales would be used to strengthen its balance sheet and "further accelerate its transformation."
GameStop also said today its March sales jumped 18% compared to the prior-year period, and were up 11% over the nine-week period ended April 4, 2020. But investors are focused on the dilution, and perhaps are also heeding the warning that GameStop itself gave in its SEC filing. It reminded people that, "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."