Video game retailer GameStop announced Thursday that it will ask shareholders to approve a pathway to a stock split at its annual meeting.
Shares opened Friday 13.4% above Thursday’s close. GME has split once before: a two-for-one split in 2007. The share price was around $50 at the time of that split. It’s trading at about $163 today.
If this feels like deja vu, that’s because it’s coming on the heels of a similar stock split announcement by Tesla on Monday. Amazon and Google have also recently announced plans to split their stocks this summer. There’s been renewed interest in meme stocks GME and AMC since mid-March when their share prices started rallying again.
So when will GameStop split its stock? The date for the annual shareholder meeting has yet to be announced, but historically the gathering takes place in June.
What does this stock split mean for investors? Read on to better understand stock splits, how they affect share price and options, and what’s next for GameStop.
So, what’s a stock split?
A stock split essentially makes the stock more accessible and flexible. Stock splits can come in any ratio — some common split ratios include three-for-one, five-for-one and 20-for-one. In each case, on the official day of the split, the number of shares in circulation is multiplied by the split ratio and the value of the stock is then adjusted accordingly.
For example, in a three-for-one split, if you’re holding one share of stock worth $210 on the day of the split, it would become three shares worth $70 each.
Public companies are bound by the parameters in their charter on how many shares can be in circulation at a given time. If a company wants to increase the number of shares, say for a stock split or a public offering to raise capital, it needs shareholder approval to do so. After that, the board of directors of the company can vote on whether to issue a stock split. GameStop’s proposed stock split would come in the form of a share dividend, where new shares are issued to existing shareholders by a given cutoff date.
Once the stock split occurs, the share price is lowered, making it more accessible to retail investors and company employees with stock compensation plans. The split also provides more financial flexibility for the company.
Note that a stock split isn’t the same thing as a stock offering. In a stock split, the issuing company doesn’t raise any capital for its own use.
How does a split affect the stock price?
In short — pun intended — anything can happen to share prices in the stock market short-term. Though we can’t say what this will bring for GME’s stock, there’s some precedent from historical stock split data. Take it with a few grains of salt, however, since GME is in a peculiar position in the stock market.
According to Bank of America research reported by Reuters, stocks that split gain 25% on average in the following 12 months, compared with 9% growth in benchmark indexes. This additional 16% of growth could be attributed to many factors besides the split itself, though, including organic company growth. Often, there’s a lot of trading executed around splits, creating volatility both before and after the split itself. With a super volatile stock like GME, the split may create some interesting price action.
What happens to my GME options during a split?
Options are affected the same way shares are if they expire beyond the official day of the split.
As an example, in the case of a five-for-one split, if you’re holding a call with a $200 strike price, it would become five $40 strike calls. This gives the “hodler” more flexibility with their strategy: You can now mix and match whether you sell or exercise them.
What’s next for GameStop?
The SEC filing denotes that the stock split is intended to provide “flexibility for future corporate needs.” Also on the docket for the annual shareholder meeting vote is an updated compensation plan, dubbed the 2022 Equity Plan. GameStop will issue a proxy statement with more details about the votes and equity plan, as well as the date for the shareholder meeting.
As for the direction of the company’s future, GameStop has announced plans to develop cryptocurrency partnerships and open an NFT marketplace. We’ll keep you updated as we learn more about the split and shareholder meeting.
GameStop didn’t immediately respond to a request for comment.
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