On Thursday, GameStop shares took a dive following its decision to raise funds by selling debt for the purpose of buying bitcoin, causing concern on Wall Street. The video game retailer revealed plans for a private debt offering of $1.3 billion, intending to use the proceeds to invest in bitcoin as a reserve asset. This move resulted in a 22.1% drop in the stock price, a sharp contrast to the 11.7% increase seen just two days earlier. GameStop’s stock is known for its volatility as it is often grouped with other meme stocks.
However, the debt offering was met with skepticism due to the high premium compared to the company’s value. Additionally, it was noted that many of GameStop’s investors may not meet the requirements to participate in the offering. Analysts expressed doubts about the decision to pay more than double the cash value for the potential conversion to bitcoin, questioning why investors wouldn’t simply invest in bitcoin directly. GameStop currently holds $4.8 billion in cash, with the bitcoin conversion expected to increase this to $6.1 billion, while the stock is valued at approximately $12.7 billion.
The decline in GameStop shares contrasts with the surge observed last May when investor Keith Gill, known as “Roaring Kitty,” expressed his support for the company online. Gill played a role in the meme stock frenzy earlier in 2021 when GameStop’s stock price skyrocketed. Despite concerns about the debt offering and bitcoin strategy, analysts at Wedbush acknowledged GameStop’s ability to generate an operating profit in the fourth quarter of 2024 and expressed confidence in the company’s future prospects for achieving breakeven results.
