GameStop shares fell over 18% on Thursday after the company announced that it will sell debt financing worth $1.75 billion in the form of convertible notes. The debt financing would be used for funding its Bitcoin investment strategy, but investors are less thrilled with the move.
GameStop’s Debt Offering Details
GameStop is selling $1.75 billion of senior convertible notes. The funds will go towards the company’s general corporate purposes, including potential investments and acquisitions under its new investment policy. This follows GameStop’s March raising of $1.3 billion prior issue.
The company surprised the market last month when it bought 4,710 Bitcoins worth more than $500 million. While stocks declined by 10% in one day, news of the investment came with the value of stocks tumbling significantly.
Investor Sentiment towards Bitcoin Policy
Investor moods concerning GameStop’s Bitcoin policy are extremely negative. Nearly all experts have reservations concerning investment volatility in cryptocurrency. NYU Stern School of Business professor of finance David Yermack has made it clear that borrowing Bitcoin can destroy companies when prices crash steeply.
Also, the revenues of GameStop have been falling for the past two years consecutively. For the first quarter, the firm posted a decline in revenues by 6%, amounting to $748 million. This decline is a result of consumers’ digital purchasing and thus making it even harder for GameStop financially.
Comparison with Other Companies
GameStop is not the first company to have jumped into crypto. MicroStrategy, for instance, has been able to add Bitcoin to its portfolio. MicroStrategy CEO Michael Saylor has bought more than $40 billion of Bitcoin treasure chests, a phenomenon that literally transformed its share price.
The market remains on high alert. Trump Media & Technology Group also declined by around 14% after the company announced raising $2.5 billion of capital from reserves in crypto.
GameStop‘s bid to hitch a ride on Bitcoin as a plan for financial turnaround has been remarkably lacking in investors’ support. The sudden plunge in the stock value is proof of immense loss of trust in taking such an endeavor. While GameStop struggles its way to try a new business model, investor trust shall be at the very core of its fate over the next two years.
