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Short sellers betting against GameStop Corporation and AMC Entertainment Holdings continue to recover their multi billion dollar losses as the year comes to an end. The two companies Shares of both companies have lost big chunks of their value over the past month, with GameStop's disappointing earnings report for its third fiscal quarter contributing to a hefty drop in share price. When taken together, the recent moves have seen the short sellers, who hope to profit from declining share prices, reverse close to half a billion dollars in year to date losses, reveals fresh data from S3 Partners for Wednesday last week.
Wall Street Analysts Cast Doubt On GameStop's Transformation Plans As Price Targets Significantly Cut Down
S3's data, released the day before GameStop was set to report its earnings and revenue for the third quarter of its current fiscal year, listed down the year to date losses for the company's short sellers sitting at $6.24 billion. While still a hefty amount, when compared to the losses they had incurred by the close of trading on November 4th, the new figure outlined that the bears had recovered roughly $260 million in a little over a month.
This recovery came just before GameStop reported its Q3 earnings. The results, which were posted after trading ended this Wednesday, saw the video game retailer post $1.3 billion in revenue and -$1.39 in EPS. When compared to Wall Street estimates for the third quarter, the revenue exceeded expectations by $110 million but the EPS fell short by $0.81.
The results also revealed that if it wasn't for a $1.6 billion stock issuance, GameStop's cash and other balance would also have been negative, leaving it with few alternatives to meet all its obligations in the event of insolvency.
Wall Street analysts were left unimpressed by the results, as indicated by a slew of price downgrades which saw Wedbush touch the bottom of the barrel by reducing GameStop's share price target to $45 and Jefferies to $180.
Since the earnings, GameStop's shares have dropped by 8% as of Friday's close, and if we remove the gains made during the final hour of trading on Friday, then the drop increases to stand at 13.8%. Naturally, this should also entail the short sellers reversing more of their 2021 losses when compared to Wednesday's data.
Year to date losses for the GameStop camp stood at $6.2 billion as of this Wednesday, which marked not only a $260 million recovery for November but also stay well below the $7.5 billion in losses that they had incurred until June this year.
However, when compared to the GameStop camp, those who had bet against AMC fared off much better. Their losses, which stood at $4.5 billion in June, have now shrunk to $2.87 billion, in $1.63 billion worth of recoveries since then. AMC's chief executive officer Mr. Adam Aron sold 312,500 shares on December 7th, netting him $9.65 million and the stock slipped once the news hit the market. Cumulatively, those betting against both compaies have recovered $1.1 billion in losses since November start.
The share price, which had already suffered losses in November, went on a further downward spiral, and as of Friday, AMC's shares are down more than one third of their value over the month. However, while they closed at $27 on Friday, the stock is still up by more than 1,000% since the start of this year, when it was trading at $2 in the wake of the ongoing pandemic and lockdowns. Citi's $6 price target is still reflective of this share price.
Mr. Aron had cautioned investors that some share sales on his end would hit the news soon, explaining that most of his compensation is tied to stocks. He also shared optimism for the company's future, during the third quarter earnings which saw his company beat analyst estimates for revenue and EPS.