GameStop hits reset with Bitcoin bet, but investors aren’t all in

GameStop is making a high-stakes bet on Bitcoin, adding the cryptocurrency to its corporate treasury and issuing $1.3 billion in convertible debt to fund the move, but some investors see more risk than reward.

The longtime meme stock favorite is also offering institutional investors the option to purchase an additional $200 million in notes within 13 days of the initial sale. While the move initially sent shares 11% higher, concerns over the company’s strategy have since weighed on the stock. GME shares are down 24% to $21.46 at the time of publication, a year-to-date low.

GameStop’s move immediately brought comparison to Strategy’s now-infamous pivot to bitcoin acquisitions in August 2020. Formerly known as MicroStrategy, Strategy's pivot turned the struggling software firm into a Bitcoin-heavy holding company, significantly boosting its share price.

While traditional investors may not be big fans of share dilution, could GameStop's move pay off in the long run?

"GameStop clearly sees the model and relative success of Strategy,” Nathan McCauley, CEO of Anchorage Digital, told The Block.

Following its latest purchases, Strategy holds a total of 506,137 BTC worth over $44 billion. However, Strategy’s $80 billion market cap significantly exceeds its bitcoin net asset value, prompting some investors to express concerns about its premium valuation and the firm’s growing number of bitcoin initiatives.

With over $4 billion in cash on hand and $3.8 billion in revenue in 2024, McCauley says GameStop’s ability to scale its bitcoin holdings could be significant.

"The risk in all of this actually lies in the intent," McCauley said in an email. "GameStop has been a largely unprofitable company for years, losing between $213m - $313m from 2021 to 2023. On $5.27B in revenue in 2024 they barely squeaked out $6.7 million in net income. So back to the intent."

"Take a mediocre business, issue debt to buy bitcoin, and pray the price goes up," he continued. "If it works, it's a genius move, and if it doesn't, you're still a floundering company that now owns a lot of bitcoin."

GME and the meme stock craze

Keith Gill, also known as "Roaring Kitty," and the subreddit WallStreetBets were at the center of the 2021 meme stock frenzy, when stocks like GameStop and cryptocurrencies like Dogecoin witnessed massive trading volume. GME shares eclipsed the $80 mark that year before leveling off. The company launched an NFT wallet and marketplace in 2022 but closed it last February, citing regulatory uncertainty.

The retailer looks to be evolving yet again. In conjunction with this week’s news, GameStop launched a new investor relations website that mimics Berkshire Hathaway's minimalist aesthetic. According to Two Prime CEO Alexander Blume, this is symbolic of GameStop pivoting to a financial engineering firm and away from the retail gaming space.

"Considering their revenues are declining about 10-20% per year the past five years, it’s likely now or never for the company to find some other line of business," Blume wrote in a note to clients. "Strategy’s revenues were also on a similar path of decline when they made the pivot to bitcoin."

GameStop's 12-month trailing revenue of $4.25 billion is roughly 10 times larger than Strategy’s $450 million. If GameStop decides to pursue aggressive debt financing for Bitcoin purchases, Blume said, it has significantly more financial strength to do so. Additionally, the company may conduct at-the-market (ATM) stock sales, effectively capitalizing on market volatility to bolster its corporate treasury.

"In our attention economy, it’s critical for PubCos to capture trends in their price fast if they intend to monetize this way," Blume wrote in the note. "These convertible debt offerings also create future dilution to shareholders if certain price levels are met to make the convert worth it. This is a delayed version of an ATM sale in essence."

Cohen and Saylor connection

Hints of GameStop’s shift emerged last month when CEO Ryan Cohen shared a photo with Strategy Chairman Michael Saylor at the Super Bowl. A few days later, CNBC reported GameStop was considering investments in alternative assets like Bitcoin and other cryptocurrencies.

"Welcome to Team Bitcoin," Saylor wrote this week on X . Some say GameStop could be in an even better position to capitalize on a corporate bitcoin treasury.

"$GME dropping after the Bitcoin announcement isn’t a bad thing—it’s the confused making way for the convicted," Fold CEO Will Reeves said in a post on X. "Just like 2021: game flippers got replaced by revolutionaries. Now, some sell because the revolution just got bigger and they don’t understand it yet."

Reeves is co-founder and CEO of Fold, an app that allows users to earn bitcoin rewards on everyday purchases. The company went public earlier this year.

Strategy was a "zombie company" in 2020 — publicly traded firms with stocks that have stagnated due to business models with uncertain prospects. According to Benchmark, GameStop has the benefit of investors’ awareness of how effective Bitcoin acquisition has been for Strategy in terms of driving share price appreciation.

"GameStop is also using a key part of Strategy’s initial approach, which was to use its operating business as the foundation for capital raising, with the proceeds used to add to its bitcoin holdings," Benchmark equity research analyst Mark Palmer told The Block.

According to Blume, the key to Strategy, GameStop and other public companies adopting a bitcoin treasury is not to reek of desperation.

"The outcomes for these companies will hinge upon true business revenues, terms of financing via debt, convertible bonds, and ATM sales, and, I think, above all, marketing," he said. "The game is on!"