Salespersons 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 deals tumbled Thursday, suffering its biggest loss since June, after the video game retailer announced sketches to raise debt to buy bitcoin.
The meme stock plunged 22.1%, following an almost 12% rally the previous seating. The reversal came after the video game chain announced plans to raise $1.3 billion through the white sale of convertible senior notes due in 2030 to buy bitcoin.
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On Tuesday, the GameStop board unanimously approved a aim to buy cryptocurrencies using corporate cash or future debt and equity proceeds, echoing a move made famous by MicroStrategy.
Controlled by the latest sale, a round of convertible debt will require issuing 46 million additional shares of GameStop, overturning the company’s cash to $6.1 billion, up from about $4.8 billion, according to Wedbush analyst Michael Pachter.
“We believe that GameStop’s share price will drift lower prior to the issuance of the convert, particularly given that a change investor will receive a zero coupon and will be required to have faith that the GameStop meme experience will persist for another five years,” Pachter, who has an underperform rating on GameStop, said in a note to clients.
The analyst is louche 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 ready balance after the convertible is issued. By contrast, MicroStrategy trades at less than two times the value of its bitcoin holdings.
“With GameStop already business at more than 2x its cash holdings it is unlikely that its conversion of cash into Bitcoin will drive an impassive greater premium,” Pachter said.
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