Shares of GameStop, Inc. (GME) have been incredibly volatile in recent days as traders piled into the stock to take advantage of a “short squeeze” which drove the share price to record highs. On Friday, January 22, 2021, GME opened at $42.59 and rose to $76.76 before closing back down at $65.01. This sparked additional interest of traders over the weekend, and on the following Monday, January 25, GME opened at $96.73 then rose to a high of $159.18 before quickly falling back down to a low of $61.13 and closing the day at $76.79. That’s an unbelievable intraday swing of 160%! And the amazing gains continued as the stock closed at $147.98 on January 26 and $347.51 on January 27. It remains to be seen how high GME can go!
Analysts have long predicted the demise of the fading video game retailer as players move to downloading games online rather than purchasing them through brick-and-mortar stores. This thesis prompted investors to take large short positions in the stock, hoping to profit as the share price declined. But a high profile investment from Chewy, Inc. co-founder Ryan Cohen, combined with massive buying interest on social media sites like Reddit, caused a “squeeze” which quickly raised the stock price as short sellers purchased shares to exit their positions.
We’ll read through GameStop’s financial filings to determine the stock float and compare our findings with the results from FloatChecker. As shown below, our check of GME gives us varying numbers between 27 million and 51 million shares.
- GameStop Annual Report 10-K
- GameStop Third Quarter Report 10-Q
- December 2020 Prospectus – $100 Million Offering
- Beneficial Ownership Table
- Short Interest
GameStop Annual Report 10-K
Public companies report their float value each year on the front page of their annual 10-K. The information is typically based on the stock price of the company at the end of the second quarter. For GME, that value “was approximately $330.2 million, based upon the closing market price of $3.78 per share of Class A Common Stock on the New York Stock Exchange.” Dividing these numbers ($330.2 million / $3.78) gives us a stock float of 87,354,497 shares.
As the excerpt above shows, the outstanding shares are listed as 64,457,992, which is lower than the calculated float. That is because the outstanding shares were reported as of March 20, 2020 while the float was based on the shares as of August 2, 2019. We’ll look at the most recent quarterly report (10-Q) to find the outstanding shares in August 2019 and then continue with our calculation.
GameStop Third Quarter Report 10-Q
On December 8, 2020, GME filed its latest 10-Q for the quarter ending October 31, 2020. The table on Shareholders’ Equity shows that, as of August 3, 2019, there were 90,500,000 shares outstanding, but GameStop also repurchased 22,600,000 shares. Companies will often execute a stock buyback to shore up its share price or improve its financial reporting ratios like earnings per share. These shares are returned to the company’s treasury and are no longer part of the public float. As a result, subtracting the repurchased shares from our calculation above gives us a remaining stock float of 64,754,497 shares (87,354,497 – 22,600,000).
The 10-Q also sets out the number of restricted stock awards GameStop granted to employees and directors of the company. These stock awards typically vest upon the expiration of a fixed time period or when certain performance goals are met. In the notes to the 10-Q, entitled “Unvested Restricted Stock and Shares Issued and Outstanding,” GME reports there are 4.6 million shares of unvested stock as of October 31, 2020. Subtracting that number from our prior result gives us a stock float of 60,154,497 shares (64,754,497 – 4,600,000).
December 2020 Prospectus – $100 Million Offering
On December 8, 2020, the company announced plans to sell up to $100 million in shares to boost its e-commerce growth and add more products. The prospectus indicates there are 4,586,306 shares of restricted common stock subject to forfeiture or the company’s right to repurchase the stock. It also states there are 138,480 shares of stock options subject to a $29.82 exercise price. Because these shares are restricted, we won’t include them as part of the float. Subtracting these shares from our running total gives us a remaining stock float of 55,429,711 shares.
But the prospectus is important for another reason: it can significantly affect the float. As the share price has risen due to the short squeeze, it stands to reason that GameStop has been selling shares to raise capital. This would result in an increase in the available stock float. We can’t know for certain, however, since those sales are not necessarily reported and therefore may not have happened. As a result, our calculation does not change.
Beneficial Ownership Table
On April 28, 2020, GME filed a Schedule 14A proxy statement that includes a table of beneficial owners who hold 5% or more of the common stock. These beneficial owners are required to file either a Schedule 13D or 13G ownership record which sets out the reasons for their investment, and they are required to amend these records if their ownership changes by 1% or more. The beneficial ownership table also sets out any restrictions on the shares. In this case, the notes to the table indicate 1,899,940 shares are unvested restricted shares. Subtracting that number from our prior total gives us a stock float of 53,529,771 shares. There may be additional shares under restriction, but we have not reviewed all the Schedule 13 D/G reports.
A major reason for the recent surge in GameStop’s share price is the incredibly high short interest in the stock. Depending on which website you check, anywhere from 130% to over 200% of the available GME shares have been borrowed and sold short. While we don’t purport to know how that math works, this high short interest creates a particularly volatile situation. Because there are a high number of short sellers who will need to buy the stock if the share price starts to rise, that buying pressure can cause the stock price to explode – especially if the stock receives some positive news coverage. Here, GameStop investors received positive news when activist investor and Chewy, inc. co-founder, Ryan Cohen, took a large stake in the company and gained three board seats to help transform the company into an e-commerce retailer. Social media then took interest and retail traders began buying the stock in droves. All of these events combined to create an epic short squeeze as short sellers had to frantically buy the skyrocketing stock to cover their positions.
Based on our review of GameStop’s financial filings, we determined that there are approximately 53.5 million shares in the public float. This number is a bit higher than the results from FloatChecker by a few million shares. But due to all the recent activity surrounding GME shares, the float may be higher than what is reported around the web. The recent short squeeze may have prompted the company to sell additional shares on the open market pursuant to its existing $100 million offering. And with the share price this high, GameStop may seek to file for additional offerings to raise money. It will be interesting to read the next 10-K and see the updated float value calculation. And of course it will be interesting to see how high the stock price can go!