Turns out, GameStop (GME) going full Michael Saylor really didn’t sit well with investors. Although the video game retailer’s plan to buy Bitcoin (BTC) initially caused its stock to jump, shares cratered 22% yesterday after it said it would issue up to $1.3 billion in convertible debt to acquire the cryptocurrency.
It’s a photocopy of the playbook Saylor used to turn Strategy (MSTR) into a “Bitcoin treasury company” and even cribbed many of the same phrases Saylor uses, such as designating Bitcoin a “treasury reserve asset.”
GameStop didn’t say how much Bitcoin it would buy, but at the current price of $85,368, the full $1.3 billion could purchase 15,228 bitcoin, making the video game retailer one of the largest corporate holders of crypto. As of last Monday, Strategy owned 506,137 that it paid $33.7 billion for at an average price of $66,608 each.
GameStop’s problem is that it is trying to use the crypto markets to salvage a dying business. Sales of hardware and software plummeted last year and it shuttered almost 600 stores. When it reported earnings alongside the bitcoin news, it said it anticipated “closing a significant number of additional stores in fiscal 2025.”
What may have irked shareholders more is that GameStop was issuing more debt that is potentially dilutive when it already had a substantial cash hoard available.
Stemming from the meme stock trading frenzy days in 2021 when GME stock rocketed 1,700% higher during a “gamma squeeze,” the video game retailer ended fiscal 2024 with almost $4.8 billion in cash, equivalents, and short-term investments on its balance sheet.
GameStop’s business is in trouble due to digital downloads and online gaming. Rather than reinvent itself with new, innovative offerings, it is attempting to take a shortcut by engaging in financial engineering.
