GameStop’s stock experienced a significant decline on Thursday following the announcement of its intention to sell debt to support the acquisition of bitcoin, leaving investors on Wall Street with questions. The popular video game retailer revealed plans for a $1.3 billion private debt offering, which it hopes to use to purchase bitcoin as a reserve asset. This move is intended to boost its cryptocurrency holdings through the proceeds of the debt issuance.
The announcement triggered a 22.1% drop in GameStop’s stock, erasing Tuesday’s 11.7% gain. Known for its volatile trading patterns, particularly as a “meme” stock, GameStop’s shares often experience dramatic swings. The debt issuance comes at a significant premium to GameStop’s market value, potentially alienating a segment of its investor base that does not meet the eligibility criteria for this private offering, as analyzed by Wedbush analyst Michael Pachter.
Pachter expressed skepticism in his analysis, questioning the rationale for any investor to pay more than twice the cash value in anticipation of GameStop converting that capital into bitcoin. He pointed out that investors with interest in bitcoin have alternative avenues, such as directly purchasing the cryptocurrency or investing in a bitcoin ETF. At the moment, GameStop holds around $4.8 billion in cash, with plans to expand this to $6.1 billion following this transaction. Currently, the company’s stock is valued at approximately $12.7 billion.
The discrepancy between GameStop’s stock price today and last year is notable, as shares have significantly declined since May. Back then, influential investor Keith Gill, also known as “Roaring Kitty,” took the stage publicly for the first time in several years to declare his support for GameStop, propelling the stock to unprecedented heights above $120 during the “meme stock” mania of early 2021.
Pachter observed that despite lacking a definitive strategy, GameStop has adeptly capitalized on the presence of a ‘greater fool’ investor mindset, willing to invest at higher multiples than the company’s asset value. Remarkably, this approach has proven successful thus far. Despite concerns regarding the debt offering and bitcoin investment strategy, Wedbush analysts separately acknowledged GameStop’s notable achievement: generating an operating profit in the fourth quarter of 2024. This performance has bolstered their confidence in the company’s potential to attain breakeven results in the near term.