GameStop’s (GME) Q3: Investors Directly Register 25% of the Company’s Outstanding Shares

 The video game retailer's Q3 DRS numbers echo Q2 and underscore the resilience of retail shareholders despite GameStop's weak stock performance.

BERNARD ZAMBONIN  •  DEC 10, 2023 7:43 PM EST

• GameStop's retail shareholders are increasingly using the DRS, registering approximately 25% of outstanding shares for greater control and transparency.

• Despite market challenges, GameStop's loyal retail investors persist in holding shares, with around 60% of its float owned by the public.

• Quarterly disclosures reveal stability in the number of shares registered through the DRS, emphasizing retail investors' unwavering commitment despite market fluctuations.

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Understanding the Direct Registration System

Typically, shareholders manage their stock holdings through conventional methods — either via brokerage accounts or physical stock certificates. While these methods are widely used and convenient, there's a lesser-known yet advantageous alternative: the Direct Registration System (DRS).

Brokerage Accounts and Physical Certificates

Traditionally, investors open brokerage or bank accounts to conveniently facilitate trades. However, shares bought through a broker are often registered under the broker's name (referred to as "street name"), limiting direct ownership for individual shareholders. Physical stock certificates, although less common today, require secure storage and involve manual processes for selling or lending shares.

The Direct Registration System (DRS)

DRS is a third option that allows shareholders to hold their shares directly with the company's transfer agent. This electronic system offers the benefits of individual registration, similar to physical certificates, but with the convenience of electronic storage. Shareholders can choose to register their shares in their name or that of the DRS account agent.

Advantages of DRS

• Control and convenience: DRS provides shareholders with greater control over their investments while offering the convenience of electronic storage.
• Security and transparency: The DRS electronic transfer process enhances security and transparency compared to physical transfers.
• Similar to physical certificates: DRS mimics the process of holding physical certificates but without the inconveniences.

Motivations for DRS Registration

Shareholders may choose DRS for various reasons, including impeding the availability of shares for short sellers. Unlike brokerages, DRS transfer agents cannot lend shares to short sellers.

DRS is available for the majority of publicly listed U.S. companies. However, it's important to note that some transfer agents may charge fees for this service.

GME Shareholders Have Embraced the DRS Strategy

For nearly three years, GameStop's  (GME) - Get Free Report dedicated community of retail shareholders has approached "traditional" trading structures with skepticism — particularly in the aftermath of various short squeezes involving GameStop shares. This community, seeking greater autonomy in the stock market and aiming to break free from brokers, has actively sought to make it more challenging for short sellers to execute trades.

A significant number of these shareholders have united on social media platforms such as Reddit to advocate for the direct registration of GameStop shares. Notably, since the start of this mass registration effort, GameStop has disclosed the number of shares directly registered with its transfer agent, Computershare, in its quarterly filings.

According to GameStop's third-quarter (Q3) filing, "As of November 30, 2023, there were approximately 305,514,315 shares of our Class A common stock outstanding. Among these outstanding shares… approximately 75.4 million shares of our Class A common stock were held by registered holders with our transfer agent (making up approximately 25% of our outstanding shares) as of November 30, 2023."

This 25% represents shares primarily held by retail investors, who, theoretically, are less inclined to engage in frequent trading. It's noteworthy that the figures released in Q3 mirror those of Q2, indicating that the number of GameStop shares registered with the transfer agent has remained unchanged.

This underscores the conviction of retail investors to hold onto their shares despite a substantial price drop in the second half of 2023.

Company's filings, compiled by the author

What Does This Mean for GameStop's Stock?

While there is limited evidence suggesting that a substantial percentage of a company's float registered in the Direct Registration System (DRS) can significantly impact trading performance, GameStop's shareholders are increasingly opting for DRS. They recognize that adopting this method of "self-custody" may yield benefits — in particular, addressing retail investors' concerns about transparency in the markets.

Despite the theoretical impracticality of using the DRS compared to holding shares through a broker — and its adoption primarily by retail investors rather than institutional ones — this trend suggests that a significant proportion of GameStop's shareholders persist in holding their shares, even during periods of bearish pressure on the company's stock price.

This implies that GameStop's most devoted holders remain steadfast. In fact, approximately 60% of GameStop's current float is owned by retail investors.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)

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