GameStop store New York City January 2021.JPG

Nick Zieminski/Reuters

  • GameStop dropped 11% on Thursday on the company's plans to sell additional shares and as the SEC looks into trading activity of its stock.
  • The video-game retailer, whose shares are part of a meme-stocks rally, said it will cooperate with the SEC's inquiry.
  • The company could sell up to 5 million shares.
  • See more stories on Insider's business page.

GameStop slumped Thursday after the video game retailer said it plans to potentially sell millions of shares and said the Securities and Exchange Commission has requested information as part of its investigation into the trading of its shares.

The company issued the updates late Wednesday alongside first-quarter financial results that beat Wall Street's expectations.

The stock started falling late Wednesday as GameStop said it may sell up to an additional 5 million shares as part of a previous agreement with its sales agent Jefferies. Investors are concerned about dilution, or that the value of shares already outstanding will decline. The sale of the shares would take place from time to time at or near market prices under the "at-the-money" agreement.

Shares of GameStop on Thursday dropped 11% to $268.61. Another source of downward pressure was GameStop's disclosure that SEC staff in late May requested the company voluntarily provide documents and other information as part of the regulator's investigation into the trading activity of its securities and in the securities of other companies.

GameStop's stock price has soared by more than 1,500% so far this year as part of a surge in so-called meme stocks -- including AMC Entertainment, Bed Bath & Beyond, BlackBerry -- that's been driven by retail investors working together to force a short squeeze on hedge funds aiming to profit from bets that the companies' share prices will fall.

"We are in the process of reviewing the request and producing the requested documents and intend to cooperate fully with the SEC Staff regarding this matter. This inquiry is not expected to adversely impact us," GameStop said as part of its quarterly financial report.

GameStop late Wednesday said sales rose to $1.28 billion, higher than the $1.16 billion expected by four analysts in a FactSet poll. Its adjusted loss was $0.45 a share, narrower than its adjusted loss of $2.44 a share a year earlier and narrower than Wall Street's forecast of a loss of $0.83 a share.

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