TLDR
- GameStop announced plans to raise $1.3 billion to buy Bitcoin through convertible senior notes
- Stock dropped over 8% in after-hours trading following the announcement
- The move comes after GameStop’s board approved Bitcoin as a treasury reserve asset
- CEO Ryan Cohen had previously sparked speculation about crypto investments with a social media post
- GameStop reported declining sales and adjusted EBITDA in its recent earnings report
GameStop’s Bitcoin Strategy Sends Stock Downward
GameStop’s stock took a hit after the company revealed plans to raise $1.3 billion to invest in Bitcoin. The video game retailer, known for its meme stock status, saw shares fall more than 8% in after-hours trading on Wednesday following the announcement.
The company plans to raise the funds through convertible senior notes due in 2030. These notes will have a 0.00% yield rate and give buyers the option to convert their holdings into shares at $28.46 or cash.
This move comes just one day after GameStop’s stock rose nearly 12%. The rise happened after the company announced its board “has unanimously approved an update to its investment policy to add Bitcoin as a treasury reserve asset.”
The Bitcoin plan wasn’t a complete surprise to market watchers. About a month ago, CNBC reported that GameStop was exploring cryptocurrency investments.
CEO Ryan Cohen had sparked rumors about crypto interests earlier. In February, he posted a picture on social media with MicroStrategy CEO Michael Saylor, who has become famous for his company’s heavy investment in Bitcoin.
MicroStrategy now holds more than 447,000 Bitcoin tokens according to a February filing. This strategy has worked well for Saylor’s company, with its stock up over 84% in the past year as Bitcoin prices have risen.
Wall Street analysts aren’t convinced the same strategy will benefit GameStop. Wedbush analyst Michael Pachter noted that MicroStrategy trades at about two times their Bitcoin holdings.
“If GameStop were to buy all Bitcoin with their $4.6 billion in cash and trade at two times [their Bitcoin holdings], the stock would drop five bucks,” Pachter told Yahoo Finance ahead of the earnings release.
The news comes as GameStop’s core business continues to face challenges. In its fourth quarter earnings report, the company posted $1.28 billion in net sales, marking a 28% decline from the same period last year.
For the full year, GameStop reported adjusted EBITDA of $36.1 million. This was down from $64.7 million the year before.
Recent Business Improvements
Despite the drop in earnings, GameStop has shown some recent business improvements. The company has been working on a turnaround through cost cuts, store closures, and a shift toward collectibles like trading cards.
These efforts have helped reduce net operating losses. The company has kept these losses to less than $10 million in each of the last two fiscal years.
GameStop currently has $4.8 billion in cash. This money generates about $220 million in interest each year from Treasury bills.
Bitcoin Investment Risks
Adding Bitcoin to GameStop’s balance sheet comes with risks. The cryptocurrency is known for its price swings and volatility.
If Bitcoin’s price rises, it could boost GameStop’s bottom line. But if prices fall, it could hurt the steady returns the company currently gets from Treasury bills.
Traders seem worried about this risk. After initially reacting positively to the Bitcoin strategy announcement, the market pushed back when details about the $1.3 billion fund-raising plan emerged.
GameStop also mentioned it might increase its cash-raising effort by up to an additional $200 million. The company stated the funds would be used “for general corporate purposes, including the acquisition of Bitcoin in a manner consistent with GameStop’s Investment Policy.”
The sudden drop in stock price wiped out nearly all of Wednesday’s gains. This suggests investors are questioning whether Bitcoin is the right move for the video game retailer.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:
- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support
