What happened
Shares of GameStop (GME 0.56%) are tumbling 8.2% at 12:50 p.m. Thursday afternoon on no news specific to the video game retailer, though the stock has fallen almost 14% since it announced a plan to split its shares a week ago.
So what
GameStop is attempting to navigate the video game industry's transition to a greater online and digital format that lessens the relevance of a physical retailer in the space. Chairman Ryan Cohen has espoused a belief the retailer should sell much of its brick-and-mortar presence and become the foremost e-commerce presence for the industry, in effect becoming the "Amazon of gaming."
Image source: Getty Images.
Cohen's played it very close to the vest on how he will effect that change, though recently GameStop announced it will be introducing a non-fungible token (NFT) marketplace that it hopes to launch by the end of the second quarter.
Now what
GameStop is seeking to increase the number of shares outstanding from 300 million to 1 billion in part to split its stock as a dividend for shareholders. Splits are typically non-events because investors simply end up with more shares, but each one is worth less. The value of the company does not change.
Many of its investors, though, have bought into the company during its meme stock rally and they're hoping the split impacts short-sellers especially hard. GameStop's stock remains heavily shorted with over 26% of its float sold short.
Because splits don't change anything, a short-seller will just be buying back more shares, but each one at a lower cost. But because splits are seen as bullish indicators, many stocks will rise in the aftermath, which could cause short-sellers to cover their position, igniting a short squeeze.
It hasn't been enough of a spark yet, however, to cause any rally.
