GameStop’s stock fell sharply on Thursday following its announcement of a debt sale aimed at funding bitcoin acquisitions, which raised some eyebrows on Wall Street.
The video game retailer revealed a private debt offering worth $1.3 billion, stating earlier this week its intention to acquire bitcoin as a reserve asset. The proceeds from this debt issuance will be allocated towards purchasing the cryptocurrency.
The stock dropped 23% during trading, a significant reversal from an earlier 11.7% increase on Tuesday. GameStop stock is frequently linked with other “meme” stocks, known for their volatility.
This debt offering is at a hefty premium based on the company’s valuation, which might exclude a significant number of GameStop investors who wouldn’t meet certain requirements for participation in the offering, as noted by Wedbush’s analyst Michael Pachter.
“We find it perplexing that any investor would be willing to pay more than double the cash value for the chance to see GameStop turn that cash into Bitcoin, especially when those investors could directly invest in Bitcoin or a Bitcoin ETF themselves,” he commented in the note.
Pachter mentioned that the company holds approximately $4.8 billion in cash, and the conversion would elevate that figure to $6.1 billion. Currently, the stock is valued at around $12.7 billion.
GameStop’s shares have significantly decreased since last May when prominent investor Keith Gill, known as “Roaring Kitty,” made his first online appearance in three years to publicly support GameStop.
Gill was instrumental in igniting the “meme” stock phenomenon in early 2021, during which GameStop’s stock price surged past $120.
“Despite an apparent absence of a clear strategy, GameStop has continually managed to attract a ‘greater fool’ willing to pay more than twice its asset value for its shares, and thus far, they have been vindicated,” Pachter stated.
Despite concerns regarding the debt offering and the bitcoin strategy, analysts at Wedbush expressed in a separate note that they were “impressed” with GameStop’s ability to generate an operating profit in the fourth quarter of 2024 and expressed “greater confidence than before” in GameStop achieving breakeven results going forward.
