GameStop Crash Explained: Roaring Kitty Responsible for 25% Slump?
GameStop's share price crashed on Friday. Photo by Artur Widak/NurPhoto via Getty Images.
Key Takeaways
- GameStop’s share price fell by around 25% on Friday.
- The crash followed massive stock market gains in anticipation of a Roaring Kitty livestream.
- The company announced below-expected Q2 sales and a planned new stock issuance.
Having climbed to a peak of over $67 per share in anticipation of the first Roaring Kitty (Keith Gill) livestream since 2021, GameStop shares (GME ) crashed to just $27 on Friday, June 7.
After a month of hype-fueled price inflation, the sharp pullback might have been inevitable. Especially after GameStop posted worse-than-expected earnings for the second quarter.
GameStop Earnings Throw Cold Water on Stock Rally
Having originally scheduled the release of its Q1 earnings for Tuesday, June 11, GameStop’s decision to post its results early has to be viewed in the context of Roaring Kitty’s influence on GME stock.
Following a three-year hiatus, when Gill returned to social media in May, GameStop shares surged by more than 250%. But as it did in 2021, the bubble eventually burst once reality hit.
Although the video games retailer has closed its losses from $50.5 million in Q2, 2023 to $32.3 million during the most recent quarter, its sales numbers were disappointing.
While analysts had been expecting revenues in the region of $900 million to $1.09 billion, GameStop posted net sales of $881.8 million for the period.
GME New Stock Issuance
Probably the largest factor behind Friday’s crash was GameStop’s announcement that it plans to sell an additional 75 million shares to cash in on high demand.
Such dilution tends to reduce the value of shares in the immediate term. However, long-term investors often benefit from new issuances due to the cash injection they provide for businesses. If Gill’s thesis that the currently loss-making business has a profitable future is correct, the new money could help fund GameStop’s transformation.
Commenting on the company’s prospects, Gill placed his faith in CEO Ryan Cohen, declaring: “I think he might be able to do it.”
Market Manipulation Claims Amid GameStop’s Sudden Decline
By Gill’s normal standards, Friday’s livestream was cautious. With Morgan Stanley reportedly considering booting him off its trading platform E*Trade over market manipulation concerns, he offered none of the brazen predictions and calls to arms he is typically known for.
Without addressing specific accusations he asserted that, “these are my positions. I’m not working with anybody else.” But the fact remains, Gill’s influence on GameStop’s share price is unprecedented.
The YouTuber’s social media activity was certainly behind GME’s May rally. And the announcement of his livestream also triggered last week’s surge. So in the sense that he helped inflate GameStop’s share price in the leadup to Friday, Gill also holds some responsibility for the ensuing crash. But did he ever cross a legal line?
Ex-E*Trade CEO Karl Roessner observed on Saturday: “I don’t see anything here that would lead me in my formal capacity to ask him to leave.”
On the other hand, Former SEC Commissioner Michael Piwowar suggested that the GameStop champion might already be under investigation.
“I have no doubt that the SEC is already looking at this as possible market manipulation,” he said. However, he acknowledged that “there’s nothing obvious about what he’s doing that is against the rules.
Who is Keith Gill? And Why Does Morgan Stanley’s E*Trade Want to Ban Roaring Kitty?
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