GameStop’s share price dropped sharply on Thursday following its announcement to sell debt to finance bitcoin acquisitions, raising concerns among investors on Wall Street.
The video game retailer revealed plans for a private debt offering worth $1.3 billion. Earlier in the week, the company stated its intentions to purchase bitcoin as a reserve asset and would utilize the proceeds from this debt sale to acquire the cryptocurrency.
The stock plummeted by 22.1%, reversing an 11.7% increase from Tuesday. GameStop’s shares, frequently classified with other so-called “meme” stocks, tend to experience significant volatility.
The debt offering is priced well above the company’s current valuation, potentially excluding a significant number of GameStop’s investors who may not meet specific qualification criteria, as noted by Wedbush’s analyst Michael Pachter.
“It is puzzling why an investor would choose to pay more than double the cash value for the uncertain chance that GameStop might convert that cash into Bitcoin, especially since these investors could opt to invest directly in Bitcoin or a Bitcoin ETF,” he stated in his report.
The company currently holds approximately $4.8 billion in cash, with the conversion potentially increasing this to $6.1 billion, according to Pachter. Presently, the stock is valued around $12.7 billion.
GameStop’s shares have significantly declined since last May, when prominent investor Keith Gill, known as “Roaring Kitty,” made a return online after three years to express his support for GameStop.
Gill was instrumental in igniting the “meme” stock phenomenon in early 2021, which saw GameStop’s stock price rocket past $120.
“Even without a clear strategy, GameStop has consistently leveraged the presence of a ‘greater fool’ willing to pay more than double its asset value for its shares, and thus far, they have succeeded,” Pachter remarked.
Despite their concerns regarding the debt offering and bitcoin acquisition strategy, Wedbush analysts expressed in a separate note that they were “impressed” with GameStop’s capacity to generate an operating profit in the fourth quarter of 2024, indicating that they “are more confident than ever that GameStop can achieve breakeven results in the foreseeable future.”
