GameStop Stock Plummets 11.8% After Bitcoin Bond Plan

GameStop, the prominent video game retailer, has announced its intention to issue bonds to purchase Bitcoin, a move that has led to a significant reversal in its stock price. On Thursday, the stock experienced a sharp decline of 11.8%, effectively erasing much of the gains it had made the previous day when it surged by nearly 12%. The company plans to raise $13 billion through the sale of convertible senior notes maturing in 2030, with the proceeds designated for the acquisition of Bitcoin. This strategic decision follows a unanimous board approval on Tuesday to use company cash or future debt and equity financing to purchase cryptocurrencies, a strategy previously employed by MicroStrategy.

The announcement of the bond issuance plan has elicited mixed reactions from analysts. Michael Pachter, an analyst, noted that the new convertible bond issuance would necessitate the additional issuance of 46 million shares of GameStop stock. This would increase the company's cash reserves from approximately $48 billion to $61 billion. Pachter, who has an "underperform" rating on GameStop, expressed skepticism about the company's ability to sustain its meme stock status over the next five years, given the high valuation of its shares and the zero-coupon nature of the convertible bonds.

Pachter's concerns are grounded in the current valuation of GameStop's stock, which is more than double its cash holdings. He questioned whether converting cash into Bitcoin would further boost the stock's premium, especially considering MicroStrategy's experience where the stock price is less than double the value of its Bitcoin holdings. The analyst's reservations underscore the uncertainty surrounding GameStop's foray into the cryptocurrency market and its potential impact on the company's financial health and stock performance.