Two months after a market phenomenon took shares of GameStop to the moon, the video game retailer said Monday that it will sell up to 3.5 million of its shares.
The shares will be sold through an “at-the-market” offering, which lets companies place their stock on the market over a period of time.
The announcement sent shares of GameStop, based in Grapevine, Texas, down 8% at the opening bell. It closed at $186.95 a share, down $4.50, or 2.35%, but is up more than ninefold this year.
The company had been pummeled as new technology allowed people to download games, rather than buying a physical copy from GameStop or somewhere else. That shift threatened the existence of GameStop and its shares had been more than halved, to $20 each, by the start of this year.
A number of hedge funds, believing the value of GameStop shares would fall further, shorted the company, or bet against its shares. However, a group of smaller investors who communicated largely on Reddit challenged those hedge funds, believing they were wrong or that they could catch them in a “short squeeze.”
To short a stock, an investor borrows shares at the current price for a fee, and buys them back at a later date. If the shares fall, the investors pockets the difference. If it rises, it can lead to massive losses because the borrowed stock is now worth more than was paid for it, and the investor must pay the difference.
That's what happened this year and shares of GameStop rocketed from $20 to $483 and ravaging short sellers. At the same time, it made a bunch of small investors very wealthy.