Roaring Kitty sparks another GameStop stock surge, short squeeze

Roaring Kitty is at it again and GameStop is back on the move.

Jun 3, 2024 - 22:30

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Roaring Kitty sparks another GameStop stock surge, short squeeze

GameStop shares soared higher again Monday, adding more than $2.2 billion in value to the money-losing videogame retailer, after a key investor unveiled a big holding that could ignite deeper interest from so-called meme stock traders.

GameStop (GME) has been arguably the best example of the meme stock dynamic since it first began its extraordinary surge in winter 2021, which was powered in part by a series of recommendations from a Massachusetts-based finance professional named Keith Gill.

Better-known by his online moniker, Roaring Kitty, and his presence on the WallStreetBets channel of social-media group Reddit, Gill helped spark both GameStop's multibillion-dollar rally as well as broader gains in a host of popular, but struggling, stocks such as AMC Entertainment (AMC) and now-bankrupt home-goods retailer Bed Bath & Beyond.

Keith Gill, better-known by his online moniker 'Roaring Kitty,' is now GameStop's fifth-largest shareholder.
SOPA Images/Getty Images

Gill, who worked for a subsidiary of MassMutual when he sparked the meme-stock craze, had been largely silent in the wake of the stock's meteoric rise. But he appeared before lawmakers on Capitol Hill in February 2021 as part of a House Committee on Financial Services probe into retail investing.

Roaring Kitty returns

His reemergence on May 12, with a social-media post that included only a man sitting forward in a chair, ignited GameStop's most recent surge and ultimately added $3.45 billion in market value by the close of trading on Friday, May 31.

A second post, this time made through Gill's Reddit account over the weekend, appeared to show a five-million-share holding in GameStop that held a market value of $116 million.

The screenshot also indicated that Gill owned a further 120,000 call options on GameStop shares, allowing him to add another 12 million to his holdings, that carried a market value of $65.7 million.

A sceenshot of Keith Gill's assumed holdings in GameStop

Exercising his option stake and converting it to GameStop shares would make him the group's fourth-largest investor, according to Bloomberg data.

Gill's prior holdings in GameStop shares could not be verified beyond social media posts from three years ago, so it cannot be determined if he has added or trimmed his overall stake.

Nonetheless, his investment comes at a challenging time in GameStop's corporate history, which has included significant turnover in its senior executive team and a reported probe into some of the trading activity of group Chairman Ryan Cohen.

GameStop has had only two profitable quarters over the past three years. It most recently posted a 20% decline in holiday sales earlier this year while unveiling a fresh round of job cuts.

The group also declined to host a conference call with analysts, instead directing investors to its Securities and Exchange Commission filings.

GameStop cashes in

GameStop used the mid-May surge in its shares, however, to sell 45 million new common shares, raising around $933 million that it said could be used for new investments or acquisitions.

Late last year Cohen, who returned as group CEO in September, said he would also manage the group's overall "investment policy," which "permits the company to invest in equity securities, among other investments."

Giuseppe Sette, president of financial-market-research firm Toggle AI, said the fundraising doesn't change GameStop's near-term headwinds.

"GameStop's core business remains challenged," he said. "With gamers increasingly opting for digital downloads over physical stores, the company has struggled."

"Recent operational updates revealed net sales falling short of estimates as the company focuses on cost-cutting measures," he added.

GameStop shares were marked 28% higher in midday Monday trading and changing hands at $29.60, after more than doubling (up 105%) in premarket trading.

More Wall Street Analysts:

Financial-analytics group Ortex estimates short-sellers would have lost more than $1 billion betting against GameStop based on the premarket moves, with other estimates placing the amount of short interest on the stock at around $1.6 billion.

As @TheRoaringKitty reveals he has 5 million shares of $GME, the second largest individual holder after Ryan Cohen, and the 5th largest holder overall, the stock goes up 70%. This has generated losses for Short Sellers of $1 billion so far, today.

Get the latest Short Interest…— ORTEX (@ORTEX) June 3, 2024

Short sellers bet against a company by borrowing shares and selling them. If the price of the stock declines, the short-sellers will buy back the shares at a lower price, return the borrowed stock (while paying a fee), and pocket the difference.