NEW YORK (BLOOMBERG, REUTERS) – GameStop, one of the popular “meme” companies whose stock has soared this year, said United States securities regulators are looking into the trading of its shares.
The video game retailer said on Wednesday (June 9) that staffers from the US Securities and Exchange Commission (SEC) had contacted the company on May 26 for voluntary production of documents and information related to the stock.
“We are in the process of reviewing the request and producing the requested documents and intend to cooperate fully with the SEC staff regarding this matter,” the company said in a quarterly filing. “This inquiry is not expected to adversely impact us.”
Since February, securities regulators have been combing social media and message board posts for signs that fraud played a role in dizzying stock swings for GameStop, AMC Entertainment Holdings and other companies, sources familiar with the matter had said at the time.
GameStop is one of a handful of stocks that have been fuelled by Reddit traders who invest based on social media buzz. Shares of the money-losing chain have gained 1,500 per cent this year, closing on Wednesday at US$302.56.
The stock fell as much as 13 per cent in extended trading after the company announced it may issue new shares, along with the hiring of two Amazon.com veterans for top leadership roles and fiscal first-quarter results.
GameStop on Wednesday also named the head of Amazon’s Australian business as its chief executive and said that the struggling video game retailer may sell new shares, sending its volatile stock down 7 per cent in extended trade and disappointing some of its ardent fan base of individual investors.
In a quarterly report that was stronger than analysts forecast, GameStop said it may sell up to five million new shares, which would be worth US$1.4 billion (S$1.85 billion) based on its latest share price.
Mr Matt Furlong, a nine-year Amazon veteran, will succeed Mr George Sherman as CEO. GameStop said Mr Mike Recupero, who spent more than 17 years at Amazon, will succeed Mr Jim Bell as chief financial officer.
Mr Furlong will join on June 21, while Mr Recupero, who was chief financial officer of Amazon’s North American consumer business, will come on board on July 12, the company said.
Earlier, shareholders elected billionaire investor Ryan Cohen, the company’s biggest stockholder and co-founder of online pet supplies retailer Chewy, as its chairman.
GameStop announced his nomination in April.
Mr Cohen warned shareholders of more volatility ahead, saying: “As my dad would say, buckle up.”
Taking advantage of GameStop’s recently surging stock price, Wednesday’s announcement of a potential share sale follows the issue of 3.5 million shares in April, which raised about US$550 million.
Some on Reddit’s WallStreetBets forum were disappointed with GameStop’s latest share-sale plan.
One commenter posted on the site: “Guys why didn’t Cohen and his NEW CFO just go to the damn bank and get a 2 per cent to 3 per cent loan to fund their new plans?”
While the recent roll-out of new video game consoles is likely to benefit GameStop, analysts warned that its soaring stock price has become disconnected from the company’s day-to-day business. At least two Wall Street analysts recently dropped coverage of the company.
Video games are a massive industry that rivals Hollywood by some measures, but GameStop’s core business of selling new and pre-owned video game discs is shrinking as consumers move to downloading games digitally or streaming. The company has lost money for the past three years.
Mr Cohen hopes to transition GameStop into an e-commerce business that can take on big-box retailers. He told shareholders at Wednesday’s meeting in Grapevine, Texas that they had “ushered in a whole new era at GameStop”, but he declined to provide a detailed plan.
He has said that changes at GameStop should speak for themselves, including hiring new employees from Amazon, Google and Chewy.
GameStop said its net sales for the quarter ending May 1 jumped 25 per cent to US$1.28 billion, exceeding analysts’ average estimate of US$1.16 billion, according to Refinitiv data.
Its adjusted loss per share was 45 cents, beating expectations of an 84 cent loss per share.
In a brief conference call, Mr Sherman gave a summary of GameStop quarterly results and did not take questions from analysts as companies normally do.