GameStop Eyeing Bitcoin With Huge Cash Pile. Will It Be the Next MicroStrategy?
GameStop has accrued $4.6 billion in cash by taking the opposite tactic of a company like Apple. And that tells us a lot.
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Shares of GameStop GME popped by about 10% in after-hours trading on Thursday, after the company was reportedly considering investments in alternative asset classes, including cryptocurrencies.
Ryan Cohen, CEO of the Grapevine, Texas-based video game retailer, recently posted a photo with Michael Saylor, the executive chairman and co-founder of Strategy MSTR, formerly known as MicroStrategy. “We are the world’s first and largest Bitcoin Treasury Company,” declares the recently updated Strategy website.
Strategy currently holds nearly 479,000 bitcoins, worth over $47 billion. GameStop currently has $4.6 billion in cash, enough to buy about 46,500 bitcoins. If GameStop invests that capital in bitcoin, it would create a portfolio about one-tenth the size of Strategy’s bitcoin position.
While GameStop traders found this news exciting, there are a few caveats to consider. First, the price of bitcoin could fall, as it is notoriously volatile.
Bitcoin has been moving sideways for the past two months, as demonstrated by its flat 50-day moving average (blue). This is likely a healthy consolidation of its massive gains following the U.S. presidential election in November.
Bitcoin was trading at $67,000 just before the U.S. presidential election, on November 4 (point A). By mid-December, bitcoin had gained about 58% in just over a month (point B).
That volatility doesn’t always favor bitcoin investors. From November 2021 through November 2022, bitcoin fell from $69,000 to $16,000, a loss of over 76%. If bitcoin was a guaranteed win, every company would invest in the cryptocurrency.
My other main concern deals with GameStop’s cash pile. How did GameStop accrue $4.6 billion in cash? By diluting its existing shares via secondary offerings.
For example, in September of last year, GameStop completed a secondary offering of 20 million shares, resulting in an increase of $400 million in cash to the company.
In June of last year, the company sold 75 million shares, resulting in a capital raise of $2.1 billion. In May of 2024, GameStop sold 45 million shares, raising $933 million.
Those three secondary offerings alone raised $3.4 billion in cash. They also increased the supply of shares outstanding by 140 million, diluting the value of each individual share.
GameStop is more than happy to unload their shares to the public. This is the opposite tactic of a company like Apple AAPL, which buys its own shares on the open market. In doing this, Apple reduces the supply of outstanding shares.
The difference between Apple and GameStop is that Apple believes its own shares are a good investment. That’s why Apple, the company, buys shares of Apple stock.
What does it say about GameStop, the company, that it is a consistent seller of its own shares? I'll let you draw your own conclusions. Safe to say I won't be a buyer of GameStop on this news.
At the time of publication, Ponsi was long AAPL.
