What Happened?
Shares of video game retailer GameStop (NYSE: GME) fell 24.1% in the afternoon session after the company announced plans to raise up to $1.3 billion in convertible debt for corporate purposes, including acquiring Bitcoin. Yes, Bitcoin.
The stock's reaction suggested markets were struggling to reconcile the potential impact of the crypto asset on GameStop's balance sheet, given the volatile nature of the digital currency, which could be too much of a risk for some investors to bear.
The stock was also likely down due to concerns about the dilutive effect of the debt, which can be converted to the company's ordinary stock, raising the total share count.
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What The Market Is Telling Us
GameStop’s shares are extremely volatile and have had 58 moves greater than 5% over the last year. But moves this big are rare even for GameStop and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was a day ago when the stock gained 15.9% on the news that the company reported strong fourth-quarter results that blew past analysts' EPS expectations, even as sales tumbled, signaling management's sharpened focus on being more efficient with its operations.
The key highlight for the quarter was the significant improvement in free cash flow, which clocked in at $158.8 million, marking a sharp reversal from earlier quarters that were dragged down by inventory bloat and operating inefficiencies. However, revenue missed significantly, tumbling 28.5% compared to the previous year. The company's exit from European markets like Italy and Germany also played a role in the fall.
Guidance wasn't offered, but investors likely drew even more optimism from the board's move to hold Bitcoin on the balance sheet, an unconventional play that could benefit from tailwinds in digital assets, given the improved regulatory landscape for the crypto market, which had scored major wins since the start of the new Trump administration.
Zooming out, we felt this was a decent quarter featuring some areas of strength but also some blemishes.
GameStop is down 29.2% since the beginning of the year, and at $21.72 per share, it is trading 55.4% below its 52-week high of $48.75 from May 2024. Investors who bought $1,000 worth of GameStop’s shares 5 years ago would now be looking at an investment worth $20,573.
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