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GameStop to sell millions of new shares to cash in on stock frenzy

Two months after a market frenzy took shares of GameStop to the moon, the video game retailer said 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 company said on Monday. The announcement sent shares of GameStop, up 850 per cent this year, down 8 per cent at the opening bell.

The price of GameStop shares has been extremely volatile but after gaining so much in an investor frenzy, the company intends to cash in on it.

The price of GameStop shares has been extremely volatile but after gaining so much in an investor frenzy, the company intends to cash in on it.Credit:Bloomberg

The GameStop saga has been one of the biggest stories on Wall Street this year.

The company had been pummelled 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 $US20 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.”

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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 exactly what happened this year and shares of GameStop rocketed from $US20, to $US483, and ravaging short sellers like Citron Research.

At the same time, it made a bunch of small investors very wealthy.

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