GameStop, the struggling video game retailer, made a smart financial move by raising nearly $1 billion through a share offering.
The company took advantage of a recent social media-driven meme stock rally that caused its shares to surge around 135% over just two days in mid-May.
TLDR
- GameStop stock (GME) surged 25% on Tuesday after raising $933 million from the sale of 45 million shares.
- The offering allowed GameStop to capitalize on a recent social media-fueled meme rally that saw its stock soar around 135% over a two-day period earlier in May.
- GameStop plans to use the proceeds for general corporate purposes, including potential acquisitions and investments.
- The stock sale coincided with a golden cross chart pattern, which some investors interpret as marking the start of a new move higher.
- Traders may book profits in GameStop shares around $27, an area on the chart where a May 13 gap sits near a key horizontal resistance level.
On Tuesday, GameStop’s stock price soared another 25% after the company announced it had successfully sold 45 million shares for around $933 million.
The offering was first disclosed on May 17, shortly after the peak of the meme frenzy. At that time, GameStop said it planned to use the proceeds for general corporate purposes like investments and acquisitions.
While GameStop did not reveal the exact sale price of the shares, the company executed the offering “at-the-market,” meaning it sold the stock at prevailing market prices.
This strategic move allowed GameStop to cash in on a portion of the meme-driven gains at elevated share price levels.
The Reddit-fueled meme stock phenomenon dates back to early 2021 when an online trading frenzy caused GameStop’s struggling shares to experience wild price swings and briefly become the most traded stock on Wall Street.
An investor known as “Roaring Kitty” is credited as the catalyst for that initial meme rally after making a big bullish bet on the ailing retailer.
Roaring Kitty’s recent reemergence on social media after roughly three years of online silence helped reignite the GameStop trading mania earlier this month. However, the stock has since given up around 70% of those meme rally gains as the hype faded.
Despite the extreme volatility, GameStop’s share sale represents a much-needed cash infusion for the company as it works to transform its brick-and-mortar business model in the face of changing consumer habits and competition from digital downloads and gaming apps.
From a technical analysis standpoint, GameStop’s projected price rally on Tuesday coincided with the stock’s 50-day moving average crossing above the 200-day moving average to form a “golden cross” pattern. Some traders view this signal as marking the potential start of a new uptrend.
