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 in order to buy bitcoin.
Loading chart…
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, brining 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.
Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange!|Uncertain markets? Gain an edge with CNBC Pro LIVE, an exclusive, inaugural event at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12.Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles, and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!
