FILE - The sign hangs above the doorway into a GameStop store, June 11, 2024, in Lone Tree, Colo. (AP Photo/David Zalubowski, file)
dzGameStop shares sunk Thursday after its plan to sell debt in an effort to fund purchases of bitcoin raised some questions on Wall Street.
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 鈥渕eme鈥 stocks, can be volatile.聽
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.
鈥淲e 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,鈥 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 鈥淩oaring Kitty,鈥 appeared online for the first time in three years to declare his support for GameStop.
Gill helped ignite a 鈥渕eme" stock craze in early 2021, when GameStop鈥檚 stock price soared above $120.
鈥淒espite a complete lack of articulated strategy, GameStop has consistently been able to capitalize on the existence of a 鈥榞reater fool鈥 willing to pay more than twice its asset value for its shares, and so far, they鈥檝e been right,鈥 Pachter said.
Even given their reservations about the note offering and bitcoin strategy, Wedbush analysts said in a separate note that they were 鈥渋mpressed鈥 by GameStop's ability to generate an operating profit in the fourth quarter of 2024 and 鈥渁re more confident than we have been in the past that GameStop can achieve breakeven results for the foreseeable future.鈥
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