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Over the past three years, GameStop (NYSE: GME) has been at the centre of a unique financial phenomenon driven by individual investors.
These investors, primarily organizing through social media platforms like Reddit’s r/Superstonk, believe that the number of directly registered shares (DRS) with GameStop’s transfer agent, Computershare, is significantly higher than what the company has reported. This suspicion has grown due to a perceived stagnation in the reported numbers over the last four quarters, despite substantial buying activity from the investor community. This article delves into these claims, examining the data from GameStop's SEC filings and the potential reasons behind the discrepancies.
Dissecting Gamestop's Numbers
GameStop’s directly registered shares data, available in their 10-K annual reports, has shown significant fluctuations and stagnation, raising eyebrows among retail investors. The term "record holders," as mentioned in these filings, refers to individuals, businesses, or nominees maintaining holdings through an account with the issuer’s transfer agent. Here's a snapshot of the reported numbers:
2021 Q3: 20,800,000 shares
2021 Q4: 35,600,000 shares
2022 Q2: 50,800,000 shares
2022 Q2: 71,300,000 shares
2022 Q3: 71,800,000 shares
2022 Q4: 76,000,000 shares
2023 Q1: 76,600,000 shares
2023 Q2: 75,400,000 shares
2023 Q3: 75,400,000 shares
2023 Q4: 75,300,000 shares
While the numbers show a significant increase up to 2022 Q2, they have stagnated since, hovering around the 75-76 million mark.
Gamestop's Change in Reporting Language
A critical point of contention among investors is the change in how GameStop reported these figures in 2023. Compare these two statements:
2022 Q3 Filing: "As of October 29, 2022, 71.8 million shares of our Class A common stock were directly registered with our transfer agent."
2023 Q1 Filing: "As of March 22, 2023, there were 197,058 record holders of our Class A common Stock. Excluding the approximately 228.7 million shares of our Class A Common Stock held by Cede & Co on behalf of the Depository Trust & Clearing Corporation (or approximately 75% of our outstanding shares), approximately 76.0 million shares of our Class A Common Stock were held by record holders as of March 22, 2023 (or approximately 25% of our outstanding shares)."
This change in reporting language introduced a level of complexity and ambiguity that some investors believe has contributed to the stagnation in reported DRS numbers. It shifted from a straightforward count of directly registered shares to a more convoluted explanation involving the Depository Trust & Clearing Corporation (DTCC), which is shown as Cede & Co.
Interested in learning more about the DTCC?
Gamestop's Stock Split Conundrum
Adding another layer to this mystery is GameStop’s 1:4 stock split in July 2022. Before the split, the total outstanding shares were 76 million, increased to 304 million. This anomaly has led investors to speculate that the stock split and the subsequent issuance of new shares by the DTCC might have influenced the stagnation in DRS numbers, seeing as these investors have been capped off at 76 million, the same number as the outstanding shares before the split.
The Broader Picture
It’s important to understand that the reported DRS numbers only account for shares held with Computershare because it is Gamestop's issuing transfer agent. Gamestop does not have data on shares held outside of Computershare. This gap in reporting is crucial given the vast community of GameStop investors. For instance, the r/Superstonk group on Reddit, with nearly 1,000,000 members, suggests a much larger pool of investors than the approximately 200,000 registered with Computershare.
A simple calculation highlights this discrepancy: dividing the 76 million shares by the 200,000 registered holders gives an average of 380 shares per holder. Considering the ongoing buying activity reported by individuals on r/Superstonk, many of whom have doubled their positions since 2022, the numbers should logically be increasing.
If you consider the fact that someone joined the r/Superstonk group probably because of their interest in the stock, the implications become even more significant. With the group at 1,000,000 people and only 200,000 registered holders, there could still be 800,000 more individual investors holding a position. For the sake of this analysis, let’s conservatively estimate that 400,000 of these members hold a position in GameStop. If each of these additional investors holds an average of 200 shares which is lower than the average with Computershare (200 shares is less than $5000 USD), this accounts for another 80,000,000 shares potentially held by retail investors through brokerage accounts.
If Gamestop could count shares that aren't registered with Computershare, it may reveal that retail investors collectively own more than 50% of the company. This ownership would represent approximately $3.3 billion in capital, based on current share prices at the time writing this article. Such a significant level of retail ownership underscores the importance of considering all forms of shareholding, not just those registered through the DRS, to fully understand the retail investment landscape in GameStop.
The Evidence from r/Superstonk
The r/Superstonk subreddit serves as a repository of evidence for the individual investor community. Here, users regularly post their growing positions in Gamestop shares, providing snapshots of their receipts to DRS their shares with Computershare. This data shows a consistent trend of increasing share ownership, which contradicts the stagnation in the officially reported DRS numbers.
The Unanswered Questions
The stagnation in GameStop’s reported DRS numbers raises several questions. Why, despite consistent buying, have the numbers plateaued? Could the change in reporting language and the stock split have introduced discrepancies? And most importantly, are the shares held outside of Computershare being adequately accounted for?
As the GameStop saga continues to unfold, these questions remain at the forefront of the individual investor community’s concerns. The discrepancy between investor-reported data and official filings underscores a broader issue of transparency and accuracy in reporting towards retail investors.