GameStop tumbles 22% as company says it plans to sell up to 5 million shares and discloses SEC request for information on trading activity (GME)

GameStop store New York City January 2021.JPGNick Zieminski/Reuters

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GameStop slumped more than 20% Thursday after the video game retailer said it plans to potentially sell millions of shares and said the Securities and Exchange Commission has requested information as part of its investigation into the trading of its shares. 

The company issued the updates late Wednesday alongside first-quarter financial results that beat Wall Street's expectations.

Shares of GameStop on Thursday sank 22% to $237.17. The stock started falling in after-hours trade Wednesday as  GameStop said it may sell up to an additional 5 million shares as part of a previous agreement with its sales agent, Jefferies. Investors are concerned about dilution, or that the value of shares already outstanding will decline. The sale of the shares would take place from time to time at or near market prices under the "at-the-money" agreement.

Another source of downward pressure was GameStop's disclosure that SEC staff in late May requested the company voluntarily provide documents and other information as part of the regulator's investigation into the trading activity of its securities and in the securities of other companies. 

GameStop's stock price has soared by more than 1,500% so far this year as part of a surge in so-called meme stocks -- including AMC Entertainment, Bed Bath & Beyond, BlackBerry --  that's been driven by retail investors working together to force a short squeeze on hedge funds aiming to profit from bets that the companies' share prices will fall.

"We are in the process of reviewing the request and producing the requested documents and intend to cooperate fully with the SEC Staff regarding this matter. This inquiry is not expected to adversely impact us," GameStop said as part of its quarterly financial report.

GameStop late Wednesday said sales rose to $1.28 billion, higher than the $1.16 billion expected by four analysts in a FactSet poll. Its adjusted loss was $0.45 a share, narrower than its adjusted loss of $2.44 a share a year earlier and narrower than Wall Street's forecast of a loss of $0.83 a share.

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