GameStop shares will soon lose three quarters of their value. But don’t worry: It’s good news for stockholders.
The company announced Wednesday that its board approved a 4-for-1 stock split, effective July 22. Shares of the meme stock darling soared more than 8% in early trading following the news.
GameStop shares have fallen back to Earth following a Reddit-fueled spike last year. The stock is down about 16% this year, mirroring the broader market sell off.
For current GameStop (GME) shareholders, the overall value of their investment will stay the same, but they will own four times as many shares when all is said and done.
Companies split their stocks for numerous reasons: Splits can put a stock’s price within reach of smaller, individual investors, help companies increase liquidity and create more demand for a stock.
Although deep-pocketed institutional investors are typically unfazed by high share prices, individual investors might be turned off by sky-high price tags. The growth of zero-fee trading apps, including Robinhood, E-Trade and others, have helped made stock splits more attractive in recent years.
Several Big Tech companies also have recently announced stock splits to help boost affordability. Amazon’s 20-for-1 split went into effect in June. Alphabet, which owns Google, also recently announced a 20-for-1 split. And Tesla announced a 3-for-1 split in June.
GameStop, like other meme stocks, is having a rough 2022. The stock plunged earlier this year, although it has battled back a bit recently. Many short sellers — investors who borrow shares and sell them in hopes of buying them back at a lower price — continue to bet big against these meme stocks, including GameStop and AMC. It’s a risky strategy, though. If a shorted stock goes up from the price the short seller purchased it, the investor can lose a lot of money.
– CNN Business’ David Goldman contributed to this report.