Cash-rich but issuing bonds to buy coins sparks public anger; Wedbush gives GameStop a "Underperform" rating
GameStop plans to issue $1.75 billion in 0% coupon convertible senior notes through a private placement, with net proceeds used for general corporate purposes. Despite the company's cash reserves reaching $6 billion and the acquisition of 4,710 bitcoins, Wedbush Securities still holds a "underperform" rating on it, with a target price of $13.50, believing that investors should not pay a premium for its cryptocurrency potential. Analysts point out that while this bond issuance reduces financing costs, it increases the risk of equity dilution, and traditional investors express concerns about its cryptocurrency strategy
According to the latest financing plan disclosed by GameStop (GME.US), the company intends to issue $1.75 billion of zero-coupon convertible senior notes due in 2032 through a private placement. According to documents filed with the U.S. Securities and Exchange Commission (SEC), the net proceeds from this interest-free financing will be used for "general corporate purposes." Notably, just before announcing the bond issuance, GameStop disclosed that it had spent $471 million to purchase 4,710 bitcoins and retained the right to make additional investments in cryptocurrencies. As of the end of the first quarter, the company still holds $6 billion in cash reserves.
The latest financial report shows that GameStop's revenue in the first quarter declined by 16.9% year-on-year, but the profitability experienced a dramatic turnaround—adjusted net profit changed from a loss of $36.7 million in the same period last year to a profit of $83.1 million. However, this performance did not impress Wall Street analysts, with Wedbush Securities' Michael Pachter bluntly stating, "Why should investors pay a double premium for the possibility of GameStop holding and trading cryptocurrencies? They can directly invest in bitcoin or related ETFs."
Pachter specifically pointed out that the only successful business expansion for GameStop recently has been in the trading card segment. Based on doubts about the company's strategy, Wedbush maintains an "underperform" rating on the stock and sets a target price of $13.50, indicating a potential decline of over 40% from the current stock price.
Market analysis suggests that while the issuance of zero-interest convertible bonds may reduce financing costs, the potential risk of equity dilution has heightened investor concerns. Coupled with the company's unconventional move into the cryptocurrency space, traditional institutional investors are voting with their feet. The subsequent direction of this capital game may depend on whether GameStop can prove the real value of its business transformation after the meme stock halo fades
