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The
video game retailer announced a private offering of $1.3 billion
in debt. The company said earlier this week that it plans to
purchase bitcoin as a reserve asset. It will use proceeds from
this debt offering to buy the cryptocurrency.
The stock slumped 22.1%, marking a sharp reversal from Tuesday's
11.7% gain. Trading in GameStop's stock, which is often included
with other so-called “meme” stocks, can be volatile.
The debt offering comes at a big premium to the company's value.
It could also leave out a large portion of GameStop's investors
who wouldn't qualify for the offering under certain investor
requirements, according to a note from Wedbush led by analyst
Michael Pachter.
“We find it hard to understand why any investor would be pay
more than two times cash value for the potential for GameStop to
convert that cash into Bitcoin, particularly since the same
investors can invest in Bitcoin or a Bitcoin ETF themselves,” he
said in the note.
The company has around $4.8 billion in cash and the conversion
will bring its cash to $6.1 billion, he said. The stock is
currently valued at about $12.7 billion.
GameStop shares are down substantially from last May when
influential investor Keith Gill, popularly known as “Roaring
Kitty,′ appeared online for the first time in three years to
declare his support for GameStop.
Gill helped ignite a “meme" stock craze in early 2021, when
GameStop’s stock price soared above $120.
“Despite a complete lack of articulated strategy, GameStop has
consistently been able to capitalize on the existence of a
‘greater fool’ willing to pay more than twice its asset value
for its shares, and so far, they’ve been right,” Pachter said.
Even given their reservations about the note offering and
bitcoin strategy, Wedbush analysts said in a separate note that
they were “impressed” by GameStop's ability to generate an
operating profit in the fourth quarter of 2024 and “are more
confident than we have been in the past that GameStop can
achieve breakeven results for the foreseeable future.”
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