gamestop stock split

The price of GameStop stock rose nearly 9% during today’s after-hours trading session after the company announced that the Board of Directors approved a 4-for-1 stock split to be effective on 21 July.

Even though stock splits have no material impact on the financial performance of a business, traders have responded positively to similar decisions made by other companies in the past couple of years.

According to the press release, stockholders of record by the end of 18 July will be entitled to receive the corresponding stock dividend. The split will be completed at the end of the day on 21 July and GME will trade at its ex-dividend price on 22 July.

One notable example was Tesla (TSLA), as shares rose around 13% back on 11 August 2020 after the company announced that it had approved a 5-for-1 split.

In addition, various prominent companies have announced similar schemes this year as is the case of Amazon (AMZN) and Alphabet (GOOG), both of which have approved a 20-for-1 split.

Meanwhile, Shopify (SHOP) also announced and completed last month a 10-for-1 stock split at a point when inflows toward equities are drying up due to challenging macroeconomic conditions.

In the case of GameStop, this could be an attempt to attract some buying interest to the stock as the price is not that high as to justify such a move.

Can GameStop Stock Pull Another Stunt Through this Split?

GameStop stock gained popularity among retail traders in 2021 as coordinated efforts from users of the popular Reddit forum WallStreetBets led to a short-squeeze that pushed the price of GME to record highs of $483 per share.

Multiple other less pronounced rallies occurred in a period of around 6 months and these events led to the collapse of one hedge fund – Melvin Capital – as the firm had amassed a large short position on GME that produced significant losses.

GameStop took advantage of the frenzy to sell shares via at-the-market offerings and that allowed the business to sanitize its balance sheet to the point that it got rid of all its long-term debt while it also built sizable cash reserves.

By the end of the first quarter of 2022, GameStop had around $1 billion in cash and equivalents on its balance sheet yet it burned almost $320 million in cash during that same period as net losses increased.

The company is currently engaged in the development of various web3 initiatives with the most prominent one being the launch of a marketplace for non-fungible tokens (NFT) called the GameStop NFT Marketplace.

GameStop May Be Aiming to Raise More Capital If the Price Rises

GameStop’s core business has been decaying for years as users now prefer to buy games online rather than going to a physical store while used video games are no longer a thing.

As a result, the company’s sales have been progressively dropping in the past 5 years at least and that led to a change in its strategic approach that has been led by Ryan Cohen – an activist investor that has acquired nearly 12% of the company thus far and who has also been appointed Chairman of the Board.

If GameStop (GME) continues to burn cash at the pace it did during this first quarter, the company would be forced to raise additional funds pretty soon at a point when macroeconomic conditions have prompted a risk-off move in the markets.

Hence, this 3-for-1 split may be aiming to trigger a short-lived rally that allows the firm to sell some more shares to raise its liquid reserves.

Being the Chairman of the Board, Cohen would have to be the person leading this decision. For shareholders, this may not be good news as it means that the company is getting ready to issue additional shares if the price rises – a situation that would have a dilutive effect on GME’s current stockholders.

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