GameStop Shares Plunge 20% After $1.75 Billion Debt Raise

GameStop, the video game retailer, experienced a significant drop in its share price, plummeting by 20% following the announcement of a new capital raise. The company plans to secure $1.75 billion in debt financing from investors, marking its second such initiative in recent months. This move comes after the retailer's recent foray into Bitcoin investment, which has been met with mixed reactions from investors and analysts.

The company's shares fell from $28.50 to $23 after the announcement. While GameStop did not explicitly state that the capital raise is for Bitcoin investments, the funds are earmarked for "general corporate purposes, including making investments in a manner consistent with GameStop’s Investment Policy and potential acquisitions." This statement aligns with the company's earlier announcement in March, where it revealed a strategic shift towards investing in Bitcoin as a treasury reserve asset.

GameStop's first Bitcoin purchase was made last month, acquiring 4,710 Bitcoins worth over $500 million at the current price. This acquisition was funded through a similar debt financing round in April, where the company raised $1.5 billion. The retailer's pivot to Bitcoin mirrors the strategy of other companies, such as a veteran software company that began investing in Bitcoin in 2020 and saw its share price surge by over 3,000%.

However, GameStop faces unique challenges that other companies do not. The retailer has struggled to adapt to the shift from physical to digital video games, resulting in a 28% decrease in sales from $5.3 billion in 2023 to $3.8 billion in 2024. Consequently, the company has closed a quarter of its locations last year and plans to continue store closures throughout this year. Investors have also expressed skepticism about GameStop's crypto plans, with the company's shares sliding 23% after the initial strategy announcement and another 10% drop following the first Bitcoin investment.

Despite these challenges, the trend of non-crypto companies adopting Bitcoin as a treasury asset continues to grow. As Bitcoin reaches new highs and gains acceptance as a treasury asset by various entities, more companies are exploring Bitcoin investments to boost their share prices. Last week, a media company's share price surged over 130% after announcing plans to acquire Bitcoin, highlighting the potential benefits of this strategy. However, the success of such investments remains uncertain, especially for companies like GameStop that face significant operational challenges.