Traders work at the post where GameStop is traded on the floor at the New York Stock Exchange on June 12, 2024.
Brendan McDermid | Reuters
GameStop shares are set to give back much of Wednesday’s rally after the video game retailer announced plans to raise debt to buy bitcoin.
The meme stock tumbled more than 7% in premarket trading Thursday, following an almost 12% rally the previous session. The reversal came after the video game chain announced plans to raise $1.3 billion through the sale of convertible senior notes due in 2030 to buy bitcoin.
On Tuesday, the GameStop board unanimously approved a plan to buy cryptocurrencies using corporate cash or future debt and equity proceeds, echoing a move made famous by MicroStrategy.
Under the latest sale, a round of convertible debt will require issuing 46 million additional shares of GameStop, bringing the company’s cash to $6.1 billion, up from about $4.8 billion, according to Wedbush analyst Michael Pachter.
“We suspect that GameStop’s share price will drift lower prior to the issuance of the convert, particularly given that a convert investor will receive a zero coupon and will be required to have faith that the GameStop meme phenomenon will persist for another five years,” Pachter, who has an underperform rating on GameStop, said in a note to clients.
The analyst is doubtful that GameStop’s foray into bitcoin following MicroStrategy’s playbook will be as successful because of the stock’s already-high valuation.
GameStop is currently valued at $12.7 billion, more than twice the cash balance after the convertible is issued. By contrast, MicroStrategy trades at less than two times the value of its bitcoin holdings.
“With GameStop already trading at more than 2x its cash holdings it is unlikely that its conversion of cash into Bitcoin will drive an even greater premium,” Pachter said.
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