GameStop slumps on share sale talk, sales dive

GameStop shares tumbled early Wednesday as the Reddit darling said it was considering cashing in on its popularity as a meme stock by issuing more shares - a move that will dilute the investment of the hordes of small investors responsible for the stock's meteoric rise in the first place.

The video game retailer said it is exploring the idea of increasing the size of a $100 million share sale in order to fund its transition into an e-commerce retailer that would play in the big league with Target and Walmart, as well as technology giants Microsoft and Sony.

As quarterly results released Tuesday overwhelmingly suggest, a transformation is very much needed if GameStop is going to survive.

Sales slid for the ninth straight quarter and the company said it will close more retail locations and exit unprofitable businesses.

For many Wall Street analysts, the results were a reminder of the disconnect between the dire state of GameStop's business and its cult-stock status on Reddit.

Earlier this year, GameStop was at the center of an epic battle between deep-pocketed hedge funds who were betting the stock would fall and an army of small investors who disagreed. Shares catapulted as high as $483 a piece boosted by comments on Reddit message board WallStreetBets. Since then, the stock has lost more than two-thirds of its value, now trading less than $150... still up though an eye-popping 700 percent so far this year.

Many analysts think this stock is still way overpriced, leading to numerous downgrades on Wednesday.

Shares tumbled around 18 percent in early Wednesday trading.