GameStop shares plunge as company eyes Bitcoin with new bond offering — investors left scratching heads
Part of GameStop's investment plan is to add cryptocurrencies like Bitcoin to its assets. Last month, GameStop already bought 4,710 bitcoins, worth more than $500 million. After the bond plan was announced, GameStop's stock dropped more than 15% on Thursday, June 12, according to the report by CNBC.
GameStop is copying software company MicroStrategy, which bought billions of dollars of bitcoin and is now the biggest corporate bitcoin holder. MicroStrategy's stock rose fast but also went through big ups and downs because of its bitcoin bets.
MicroStrategy used similar methods like convertible debt to fund its bitcoin buys. GameStop's CEO, Ryan Cohen, said they want to buy bitcoin because it might protect the company from big economic risks. Bitcoin has a fixed supply and is decentralized, which makes it a possible hedge against some problems, as stated in the report by CNBC.
GameStop's sales drop
GameStop's business is still mainly a physical store retailer, but they reported lower sales for the first quarter recently. Their revenue dropped 17% compared to last year, falling to $732.4 million. After the earnings report, the stock fell 5% on Wednesday, June 11, before the bond news.
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Investors and Wall Street are unsure if GameStop can do as well as MicroStrategy with bitcoin investments. Michael Pachter, a Wedbush analyst, said GameStop's stock is mostly driven by 'greater fools', as mentioned in the report by CNBC.
Pachter thinks the bitcoin buying plan does not make much sense because the company's stock is already priced at 2.4 times its cash value. He doubts that turning more cash into bitcoin probably won't make the stock price go up even more, as per reports.
FAQs
Q1. Why did GameStop shares fall recently?
Shares fell because investors are unsure about the company's plan to buy more bitcoin using bond money.
Q2. What is GameStop's new investment plan?
GameStop wants to raise money by selling bonds and use it partly to buy more bitcoin.
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