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The GameStop earnings were an anticlimax. Its 10-K filing, though…

U.S. one dollar banknotes are seen in front of displayed GameStop logo
Dado Ruvic / Reuters
Money matters
  • Samanth Subramanian
By Samanth Subramanian

Looking into the Future of Capitalism

Published

For the most anticipated earnings event of the year to date, GameStop’s call with analysts on Tuesday night was something of a damp squib.

So many people had dialed in to listen that the call hit its capacity 45 minutes before it began; it had to be additionally livestreamed on YouTube and Twitch. But the call itself lasted just half an hour, and GameStop took no questions at all. As a result, the event featured zero mentions of Reddit, short squeezes, and WallStreetBets traders who drove GameStop’s stock price to an all-time high of $347 in late January.

GameStop’s earnings didn’t exactly match the anticipation either. Its net sales in the fourth quarter totaled $2.12 billion, short of analyst estimates of $2.24 billion. Analysts had also expected adjusted earnings per share of $1.35; GameStop announced $1.34 per share. After the call, shares fell 15% by the end of late trading.

A measure of anticlimactic feeling was palpable even on WallStreetBets, the den of the staunchest GameStop champions. One user, wokeupsnorlax, condensed the call’s message into a five-minute video featuring an animated gorilla synced to recordings from the call of George Sherman, GameStop’s CEO. “Thank you for this,” a user responded. “This was boring af to listen to live.” When the stock price dropped, another user named Spearmintzs exhorted, “Have patience fellow apes,” before advising said apes to buy the dip.

On the same evening, though, GameStop also filed a 10-K, a regulatory document required by the Securities and Exchange Commission of all publicly traded companies. And the 10-K is where the real action was. 

Early in the document, while outlining its growth strategies, GameStop revealed that it was considering a sale of its stock to fund operations and expansion costs. In December—at a time when Redditors were beginning to rally around GameStop, but before the short squeeze had fully taken effect—the company set up a plan to sell a total of $100 million in Class A Common Stock “from time to time.”

Since January 2021, in the thick of the short squeeze, GameStop has been wondering whether to sell more than the planned $100 million worth of shares. It will depend, the 10-K acknowledged, on a number of factors, including “market perceptions about us”—or, in other words, what the stock trades at.

This is the closest that GameStop has come to publicly acknowledging the feverish trading of its stock. And it resolves in part a question that many people had during the height of the meme-stocks mania: Why wasn’t GameStop selling shares to make money, the way AMC did? AMC issued 50 million new shares, and in combination with some debt-conversion schemes, made nearly $1 billion off the markets. GameStop sold no shares at all, it admitted in its 10-K. It was possible to see this as a sign of laudable restraint; it was also possible to see this as a giant missed opportunity to make some money, which could have then been invested or used to wipe away debt.

One other aspect of the 10-K reflected the meme-stocks fever in a way that the earnings call didn’t. In the mandatory section listing titled “Risks Related to Our Common Stock,” the first item of them all—above uncertainties related to the pandemic, or exits of large stockholders—was short squeezes. Stockholders who purchase shares of our Class A Common Stock during a short squeeze “may lose a significant portion of their investment,” GameStop warned.

This is, in every way, unusual. Between 2001 and now, the phrase “short squeeze” has appeared in 10-K filings a total of just 90 other times, according to a search on the SEC’s Edgar database. That’s 90 times out of roughly 568,000 filings, a frequency of 0.016%. WallStreetBets has affected the very language that GameStop uses about itself.

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