GameStop (NYSE: GME) Plunges 22% After Announcing Bitcoin Buy the Saylor Playbook

GameStop (NYSE: GME) is making a daring attempt to revive its struggling business by emulating Michael Saylor's Bitcoin playbook. However, the market reaction suggests that investors aren't buying into the video game retailer's crypto gamble. Despite an initial surge, GME stock plunged 22% following the company's announcement that it would issue up to $1.3 billion in convertible debt to purchase Bitcoin (BTC).

In a daring attempt to salvage its struggling business, GameStop (NYSE:GME) is emulating Michael Saylor’s Bitcoin playbook. But early indications suggest that investors aren't buying into the video game retailer’s crypto gamble.

GME stock plunged 22% after the company announced it would issue up to $1.3 billion in convertible debt to purchase Bitcoin (BTC).

The move, which mirrors the aggressive Bitcoin acquisition strategy used by MicroStrategy (NASDAQ:MSTR) under its co-founder, also drew criticism from investors.

Despite a triple-digit rally in 2024, GameStop shares had risen 9% in premarket trading by Monday.

GameStop Goes Full Saylor With Bitcoin Strategy

GameStop said it would issue convertible preferred bonds in a private placement with a total purchase price of $1 billion. The company also granted the purchasers of the bonds an oversubscription privilege of up to an additional $300 million of convertible preferred bonds.

The bonds will accrue interest at a rate of 5.0% per year and mature on March 31, 2028. They will be convertible into shares of GameStop common stock at an initial conversion rate of 27.78 shares of common stock for each $1,000 principal amount of the bonds.

This means the bonds will be fully convertible at an initial aggregate exercise price of approximately $36.00 per share of common stock. However, the conversion rate and the conversion price will be subject to adjustment in certain instances.

Announcing the move, GameStop chairman and CEO, Mike Wu, said:

“This opportunistic financing allows GameStat to further strengthen its balance sheet with minimum dilution at favorable terms. We are issuing convertible preferred bonds with a low interest rate and a substantial premium over the current share price, providing a unique investment opportunity for new investors.”

The company also announced that it had entered into a 5-year agreement for a revolving credit facility with a group of banks, with an initial commitment of $400 million, expandable over time. The facility will mature in March 2028 and may be used for general corporate purposes.

While the company did not disclose how much Bitcoin it plans to buy, at the current price of approximately $85,368 per BTC, the full $1.3 billion could acquire roughly 15,228 Bitcoin. That would make GameStop one of the largest corporate holders of the cryptocurrency.

For context, MicroStrategy owns 506,137 Bitcoin, which it purchased for $33.7 billion at an average price of $66,608 per coin. But unlike MicroStrategy—an enterprise software company with positive cash flow—GameShot is a declining retail business that has been reporting losses.

Investors Reject the Crypto Pivot

Instead of being impressed by GameStop’s move to buy Bitcoin, investors saw it as a desperate attempt at financial engineering. The sharp sell-off indicated deep concerns about the company’s strategy, which involves taking on potentially dilutive debt despite already having a large cash reserve.

GameStop ended fiscal 2024 with $4.8 billion in cash, equivalents, and short-term investments on its balance sheet.

Rather than tapping into its cash hoard, the company opted for convertible debt issuance, which could lead to shareholder dilution if the bonds are eventually converted into equity.

Moreover, the interest rate on the bonds is 5.0%, which is relatively high considering the current low-interest-rate environment.

The Bitcoin gamble also comes at a time when GameStop’s core business is deteriorating. The retailer has been closing stores and losing market share as gamers increasingly shift to digital downloads and online gaming platforms.

Last year, GameStop shuttered nearly 600 stores, and during its recent earnings announcement, it hinted at more closures in fiscal 2025. The company’s revenue continues to decline as physical game sales fall out of favor.

By pivoting to Bitcoin, GameStop appears to be seeking a shortcut to financial relevance, hoping to capitalize on the rising crypto market. But investors seem to view the move as a risky distraction from the company’s fundamental problems.

Why the Market is Skeptical

While Bitcoin’s recent surge has sparked renewed interest from corporations, GameStop’s decision raises red flags for several reasons:

* Struggling retail business: Unlike established tech companies with strong cash flow, GameStop is a retail chain that has been struggling to adapt to the changing gaming landscape. The company reported a net loss of $1.03 billion for fiscal 2024, and its revenue has been declining steadily.

* Dilutive financing: To purchase Bitcoin, GameStop is issuing convertible preferred bonds, which could lead to shareholder dilution if the bonds are fully converted into