The embattled videogame retailer GameStop (GME) has been once again saved by retail investors as the company managed to take advantage of the reignited meme-stock frenzy to complete a massive at-the-market equity offering that brought in nearly $1 billion in proceeds.

The company sold the maximum number of shares allotted (45 million) for a total of $933.4 million and has successfully shored up its finances so it can live to fight another day.

GameStop’s share price had been on a rollercoaster ride in recent weeks as it experienced a significant surge that delivered gains of nearly 180% at some point as the stock jumped from $17.5 per share on May 10th to an intraday high of $65 apiece on May 14th.

gamestop stock surges to highest level since november 2021

This meteoric rise was primarily fueled by the return of Keith Gill, the former Reddit trader known as “Roaring Kitty” and “DeepFu*kingValue,” who played a pivotal role in the unprecedented 2021 meme stock mania that catapulted GME to stratospheric its highest levels on record.

On May 13th, Gill, who went radio silent on social media for three years, posted a cryptic image on X (formerly Twitter) depicting a man leaning forward in a chair, implying that he was once again paying close attention to the latest developments.

While the post made no explicit reference to any particular stock, it was widely interpreted by retail traders as a signal that he would be refocusing on GameStop. As a result, the share price was propelled to its highest level since November 2021.

Retail Investors Could Once Again Squeeze Short Sellers Out of Their Positions

The resurgence of GameStop’s share price has put immense pressure on short sellers who had bet against the company’s success. According to data from financial analytics firm Ortex Technologies, approximately 20.5% of GameStop’s publicly available shares were held in short positions as of Tuesday.

The cost of borrowing GameStop shares has also skyrocketed, with Ortex data indicating a daily borrowing rate of around 35%.

This exorbitant borrowing cost makes it increasingly expensive for short sellers to maintain their positions, potentially forcing them to cover their shorts by buying back shares and further fueling the stock’s upward momentum. This is what is often called a “short squeeze.”

The management’s move to take advantage of the recent uptick and the positive impact that these funds will have on the company’s cash reserves is prompting a pre-market rally on GameStop (GME) shares as they are gaining nearly 27% following the news.

Management Weighs in on Stock Volatility and Social Media Influence

While GameStop’s management team has remained largely silent on the recent developments involving the company’s stock, they have acknowledged the potential risks associated with the equity offering in its filing with the US Securities and Exchange Commission (SEC).

The filing highlights concerns about “volatility in our common stock price, including volatility due to potential short squeezes” and “the availability of content via public media that is published by third parties, including blogs, posts, articles, message boards and social and other media that may include statements not attributable to the Company and may not be reliable or accurate.”

These statements seem to refer to the role that online communities and social media platforms have played in driving the meme stock phenomenon, which has undoubtedly contributed to GameStop’s recent stock surge. It has good reason to worry about the massive influence outside actors have on the company but so far the effects have been mostly positive.

Preliminary Q1 2024 Results: A Mixed Bag

On May 17th, GameStop released its preliminary unaudited financial results covering the first quarter of fiscal year 2024. They painted sort of a mixed picture of the company’s performance.

On the positive side, the videogame retailer reported expected selling, general, and administrative (SG&A) expenses in the range of $290 million to $300 million, down from $345.7 million in the same quarter last year.

Additionally, GameStop’s net loss is expected to shrink, ranging from $27 million to $37 million, compared to a net loss of $50.5 million in Q1 2023. Naturally, losing tens of millions of dollars every quarter is still very bad, especially for a company that isn’t seeing tremendous growth (unlike tech companies that don’t profit for years).

However, the company’s net sales are projected to decline substantially, with estimates ranging from $872 million to $892 million, representing a 27% decrease from the $1.24 billion reported in the prior year’s fiscal quarter.

This drop in sales highlights the ongoing challenges that GameStop faces in its brick-and-mortar operations as customers increasingly turn to e-commerce and cloud platforms for their video game and collectible purchases.

Is GameStop Raising Money to Turn Around its Ailing Business?

Despite the sales decline, GameStop’s cash position was robust even without the equity offering as cash, cash equivalents, and marketable securities were expected to sit in a range between $1.07 billion to $1.09 billion at the end of the first quarter.

This strong cash position along with the proceeds obtained today are providing GameStop with ample financial resources to pursue its strategic objectives and withstand the decline that its core business is experiencing for many more years.

Also read: Was This GME Rally Organic? Suspicious Options Trades Suggest Big Money Involvement

In its announcement, GameStop stated that it intends to use the net proceeds from the offering for “general corporate purposes, which may include acquisitions and investments.”

While the company did not provide specific details, this vague statement has fueled speculation that GameStop may be positioning itself to make dramatic changes to its business model.

Once again, GameStop has made the most out of its stock’s unexpected – and unjustified – upward volatility. However, this influx of cash itself can’t save its business – although it can certainly help.

The infusion of nearly $1 billion in fresh capital provides a much-needed financial cushion if the company were to pull off a pivot to a new business or change the way it delivers its products to customers. The company’s long-term success will ultimately depend on its ability to adapt to changing consumer preferences and market dynamics. If it doesn’t change, it will likely continue to lose millions of dollars every quarter until it can no longer function.

The investment community is certainly watching the company’s every move and the sharks are still circling no matter how much money they have in their coffers.

Meme Stocks Are a Double-Edged Sword – Approach with Caution

The latest uptick experienced by GME stock highlights the influence and impact that rampant stock market speculation driven by social media hype and online trading communities have on financial securities these days.

As the company’s upper management acknowledges, the influence of “public media” which includes news articles, blogs, X and Instagram posts, forum discussions, Telegram groups, and message boards represent a significant risk factor for businesses nowadays as these sources may disseminate information that is “not reliable or accurate” and that can exacerbate drastic moves in the price of a stock.

While GameStop was first in line to benefit from the rally, investors who bought the “meme stock” at the sky-high prices seen on May 14th have probably lost most of their investment in the process. This double-edged sword emphasizes the risks that investors face these days if they allow themselves to be influenced by social media hype. Sure, you could make a tidy profit if you’re lucky enough, but it’s just as likely (if not more so) that you lose much or most of your investment in meme stocks.

As the dust settles on this latest chapter in the GameStop saga, which most people thought was more than done until earlier this month, regulators may be gearing up to pull something out of their sleeves to make sure these incidents can be avoided or at least controlled to some extent in the future to protect unwary investors and financial institutions from being dramatically impacted by the resulting losses.