What Happened:

Shares of video game retailer GameStop (NYSE:GME) fell 23.8% in the morning session after the company announced preliminary financial results which revealed a sharp decline in sales. The results indicated Q1'24 net sales are expected to come in between $872 million to $892 million (vs. $1.237 billion in the same period last year). The sales guidance also fell significantly below analysts' expectations for Q1'24 sales of $1 billion. 

Separately, the company announced an agreement with Jefferies to offer and sell up to 45M shares of its common stock. It expects to use the proceeds "for general corporate purposes, which may include acquisitions and investments in accordance with our investment policy." Notably, before the announcement, Gamestop had more than 305m shares outstanding, which means the stock sale could raise the supply by nearly 15%. This could have a negative impact on its stock price as the increase in the supply of outstanding shares dilutes the ownership of existing shareholders.

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What is the market telling us:

GameStop's shares are very volatile and over the last year have had 42 moves greater than 5%. But moves this big are very rare even for GameStop and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The previous big move we wrote about was 4 days ago, when the company gained 119% as meme stocks soared (AMC Entertainment (NYSE:AMC) +14%, Newegg Commerce (NASDAQ:NEGG) +14%, Beyond (NYSE:BYON) +14%). Gamestop's stock rally also coincided with the return of the famous Wall Street Bets (Reddit stock trading forum) trader Keith Gill (known online as Roaring Kitty) to Twitter (also known as X.com) after three years. The moves likely point to the growing interest of retail investors in the stock market.

GameStop is up 20.4% since the beginning of the year, but at $20.12 per share it is still trading 58.7% below its 52-week high of $48.75 from May 2024. Investors who bought $1,000 worth of GameStop's shares 5 years ago would now be looking at an investment worth $9,324.

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