This week, GameStop reported earnings that exceeded expectations — but the company’s stock fell following the disclosure that the Securities and Exchange Commission was investigating its trading practices.
The video game retailer reported a 25% increase in first-quarter sales to $1.28 billion, up from $1.02 billion a year ago.
However, its regulatory filing revealed that on May 26, it “received a request from the SEC staff for the voluntary production of documents and information relating to an SEC investigation into trading activity in our and other companies’ securities.”
Thursday, GameStop shares opened 10% lower and closed 27% lower at $220.39 per share.
The company dismissed concerns that the SEC’s investigation would harm them, stating that the inquiry “is not expected to have a material adverse effect on us.”
Earlier Wednesday, SEC Chairman Gary Gensler hinted that the commission may be investigating multiple so-called meme stocks as part of a broader examination of market structure.
The Chairman stated during a conference that he and his staff would consider possible responses to the volatility of stocks such as GameStop and AMC, which have soared in value over the last year as Reddit boards continue to hype them.
GameStop’s stock has increased by 1,500 percent in the last year, while AMC’s stock has increased by 2,200 percent.
“The issue is whether our equity markets are as efficient as they could be in light of recent technological advancements and developments,” Gensler stated.
He clarified that the staff would take their time implementing any changes and would solicit input from the industry on any proposed changes. Nonetheless, news of the SEC’s involvement dampened investor enthusiasm and raised questions about the company’s long-term viability.
Yesterday, shareholders who raised those concerns did not receive responses. George Sherman, the outgoing CEO, spoke for only 11 minutes and refused to take questions.
The company stated that it will continue to file a prospectus with the Securities and Exchange Commission to sell up to 5 million additional shares of common stock to investors, raising up to $1.5 billion for potential acquisitions if their stock price remains stable.
Apart from the announcements, the company made no forecasts.
“Investors deserve more than memes to determine a company’s long-term fundamental prospects,” Baird’s Colin Sebastian and Dalton Kern wrote in a note to investors.