GameStop shares tank on convertible bond offering to potentially buy more bitcoin

GameStop shares took a hit after the company announced plans for a $1.75 billion convertible notes offering to potentially fund its new bitcoin purchase strategy. The retailer intends to use the proceeds for general corporate purposes, including investments and potential acquisitions. This move comes after GameStop recently purchased 4,710 bitcoins, worth over half a billion dollars, as part of its investment policy to add cryptocurrencies to its balance sheet.

The stock plummeted more than 15% in premarket trading following the announcement, signaling investor skepticism. GameStop’s decision to venture into bitcoin mirrors software company MicroStrategy’s strategy of buying billions of dollars worth of the digital currency. MicroStrategy became the largest corporate holder of bitcoin, leading to a surge in its stock price.

CEO Ryan Cohen stated that GameStop’s move to invest in bitcoin is driven by macro concerns, as the cryptocurrency’s fixed supply and decentralized nature could provide protection against certain risks. Despite this strategic shift, GameStop reported a decline in fiscal first-quarter revenue, attributing the drop to increased demand for online gaming. Revenue fell 17% year over year to $732.4 million, causing a 5% drop in shares following the earnings report.

Analysts like Michael Pachter from Wedbush remain skeptical about GameStop’s potential success with the bitcoin buying strategy. Pachter reiterated his underperform rating, highlighting that the meme stock has relied on “greater fools” willing to pay premium prices for its shares. He believes that the company, already trading at 2.4 times cash, is unlikely to see a significant boost by converting more cash to crypto.

Overall, GameStop’s foray into bitcoin and the convertible notes offering signal a strategic shift for the retailer. The market response suggests a level of uncertainty among investors regarding the company’s ability to replicate the success of MicroStrategy. It will be interesting to see how GameStop navigates this new direction and whether it can deliver value to shareholders in the long run.