GameStop (GME:NYSE) shares rise in extended trading as video retailer files for stock split

GameStop (GME:NYSE) shares surged in Thursday’s extended trading after the company said it planned to implement a stock split. The video game retailer said it will seek stockholder approval at its next shareholder meeting for an increase in the number of Class A common stock from 300,000,000 to 1,000,000,000 to partly conduct a stock split in the form of a stock dividend which would make it easier for retail investors to own its shares.

GameStop plans to increase its number of outstanding Class A common shares to 1 billion from 300 million, it said in a filing. The company will also ask shareholders to vote on a incentive plan “to support future compensatory equity issuances”, it added.

The move comes after retail investor interest in so-called ‘meme stocks’ flared up in the last two weeks, leading to a doubling in GameStop’s share price to $166.58. A stock split makes shares more affordable for individual investors by lowering the price, without affecting the company’s valuation.

Some investors are betting that the stock split will boost the value of GameStop by attracting more meme-stock enthusiasts. The firm’s shares jumped 19% in after-hours trading on Thursday after the company announced the move.

In the past two years, Apple (AAPL.NASDAQ), Nvidia (NVDA.NASDAQ) and Tesla (TSLA.NASDAQ) have split their shares, while Amazon (AMZN.O) and Google-parent Alphabet (GOOG:NASDAQ) have recently announced upcoming share splits.

Earlier this week, Tesla’s market capitalisation jumped by more than $80 billion after the electric car maker said it would seek investor approval to once again increase the number of its shares to enable a future stock split, without saying when that split might occur.

This month’s stock market recovery, driven by hopes of a resolution in Russia’s conflict with Ukraine, has boosted the investors’ risk appetite, making conditions for meme-stock rallies more favorable.

Meme stocks are heavily shorted shares that are snapped up by retail investors on social media platforms such as Reddit with the aim of squeezing out hedge funds betting against them. The trend took Wall Street by storm in January 2021 and slowly fizzled over the course of the year.

GameStop’s proposed stock split is aimed at achieving two goals. First, to regenerate retain interest in the stock which as been dwindling. The market this year has been topsy-turvy with factors such as hike in interest rates, Ukraine war and inflation creating uncertainty and huge sell-off in U.S. equities.

Secondly, the stock split while boosting interest may ultimately lead to an increase in stock value which the company can use to raise more cash. GameStop inserted a line in its regulatory filing that suggested part of the increase in shares could be used at some point for other means, possibly selling more stock.

Billionaire Ryan Cohen, who is the chairman of GameStop’s board, disclosed earlier this month that his investment company purchased 100,000 shares of the game retailer. The purchase took Cohen’s total ownership of GameStop to 11.9%.

Cohen’s effort to turn GameStop around after he joined the company last year by investing in its stores and e-commerce business and bringing in new talent have yet to produce major results.

The company earlier this month reported a net loss of $147.5 million for the three months ending January, the first holiday-season loss in its history. The retailer has been trying to win back gamers who now turn to online streaming or other outlets.

Still, investors and analysts hoping for a fundamental turnaround at GameStop have been disappointed so far, as the company revealed little detail about its e-commerce transformation. Unless the company becomes profitable soon, GameStop’s cash balance may erode.