GameStop’s Stock Price Plunges About 20% After Meme Stock Surge

GameStop's stock ( GME ) price dropped about 20% after a meme stock surge by investor Keith Gill. The company announced plans to sell new shares and lower its sales forecasts, causing the stock to fall back to Earth. GameStop ( GME ) now expects first-quarter sales to range between $872 million to $892 million, significantly lower than the $1.24 billion it made in the same quarter last year and below analyst estimates of $1 billion.

The video game sector has lost steam since the start of the pandemic, and there are no near-term catalysts in sight for GameStop ( GME ). Analysts believe that the issuance of new shares makes sense, as it raises the company's cash reserves while sales continue to fall. However, they remain pessimistic about its long-term future.

Michael Pachter of Wedbush believes that GameStop ( GME ) cannot "save its way to prosperity" and expects the mix of software sales to continue to shift to digital and away from physical. He believes that GameStop ( GME ) will see continuing sales declines next year as well, and the company must deploy its cash productively or hope to issue more shares at elevated levels to forestall the inevitable.

The surge in GameStop shares ( GME ) came after Gill resurfaced online, posting an image of a man sitting forward in his chair, a meme that gamers often use when things get serious. Since the earnings preannouncement by GameStop ( GME ) and the company's decision to sell additional shares, he has posted 17 additional memes, indicating he plans to continue supporting the company.