GameStop has gone through more phases over the last few years than your angsty teenage brother. The company has transformed from brick and mortar video game store, to booming meme stock legend, to struggling ex-meme stock, to…a bitcoin play?
It’s true: GameStop announced late yesterday that its board approved “the addition of Bitcoin as a treasury reserve asset, whereby a portion of our cash or future debt and equity issuances may be invested in Bitcoin.”
The news wasn’t a huge shock to the meme stock’s investors, who suspected the company would make a crypto pivot after CEO Ryan Cohen posted a pic with MicroStrategy’s Michael Saylor in February.
It turns out that betting on bitcoin reminded GameStop shareholders of the company’s 2021 glory days. Shares soared 11.65% today.
GameStop buying bitcoin
However, the bitcoin excitement is the bandaid covering the fact that GameStop’s original business model—selling video games—is floundering.
The company announced yesterday that it plans to close even more of its stores, after sunsetting about a quarter of them over the past year. It also reported net sales of $1.28 billion in Q4, down 28% from a year earlier and below expectations of $1.48 billion.
The one bright spot in GameStop’s earnings was its humongous pile of money. The company has about $4.8 billion in cash, an impressive increase from the $922 million it had this time last year. A good chunk of that hoard will likely go toward buying bitcoin.
While pulling a page out of MicroStrategy’s playbook and essentially becoming a bitcoin investment was well received by investors today, there’s an obvious pitfall to this strategy: It’s basically another version of a meme stock gamble.
With a weakening business, a lack of solid fundamentals, and a history of volatile trading, tying itself to another highly risky asset doesn’t exactly equate to great long-term, steady investment returns for GameStop shareholders.
Another obvious flaw in the plan: Why would retail investors buy GameStop as a bitcoin play, when they could just buy actual bitcoin or a spot bitcoin ETF?
The big picture: The median price target on GameStop is $11.50, about 60% lower than where it's trading today. Across all the analysts covering GameStop, the consensus rating is “sell” according to the Wall Street Journal.—LB
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