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GameStop reported better than expected earnings this week — but its numbers were overshadowed by a disclosure that the Securities and Exchange Commission was investigating its trading practices.
The company reported on Wednesday a 25 percent increase in sales in their first fiscal quarter and revenue of $1.28 billion — up from $1.02 billion a year ago.
In its earnings filing, the company revealed: “On May 26, 2021, we received a request from the Staff of the SEC for the voluntary production of documents and information concerning a SEC investigation into the trading activity in our securities and the securities of other companies.”
The company brushed off worries they’d be damaged by the SEC’s interest. “This [SEC] inquiry is not expected to adversely impact us,” GameStop said in a statement.
GameStop shares opened 10 percent lower Thursday on the news.
Earlier Wednesday, SEC chief Gary Gensler suggested the commission may be looking at multiple so-called meme stocks as part of a broader review of market structure.
Speaking at a conference, the Chairman said he and his staff would be looking at possible responses to the volatility of stocks like GameStop and AMC which have skyrocketed over the past year as Reddit boards continue to hype them.
GameStop has risen 1,500 percent over the last year and AMC has spiked 2,200 percent.
“The question is whether our equity markets are as efficient as they could be, in light of the technological changes and recent developments,” Gensler said.
He clarified the staff would take their time implementing any changes and would accept industry input on any proposal. Still, news of the SEC’s involvement was enough to dampen investor enthusiasm and raise questions about how viable the company is over the long-term.
Shareholders asking those questions weren’t given answers yesterday. Outgoing CEO George Sherman spoke for just 11 minutes and refused to take questions.
The company said it still plans to file a prospectus with the SEC to sell up to 5 million more shares of common stock to investors, a move that could raise up to $1.5 billion for potential acquisitions if their stock price remains constant.
Apart from the announcements, the company declined to provide a forecast.
“Investors deserve more than memes to value a company’s fundamental, long-term prospects,” Colin Sebastian and Dalton Kern of Baird wrote in a note to investors.
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