Meme stock, GameStop Corp (NYSE: GME), announced on Tuesday that it was following the investment playbook made popular by Michael Saylor’s Strategy (NASDAQ: MSTR) (formerly Microstrategy) by approving a plant to buy bitcoin with its corporate cash.
As a result, the company’s shares rose by over 6 per cent in extended trading. GameStop announced it may invest a portion of its cash or future debt and equity issuances in bitcoin and U.S. dollar-denominated stablecoins. As of February 1, the retailer held nearly USD$4.8 billion in cash and stated it hasn’t set a ceiling on the amount of bitcoin it may purchase.
Strategy has bought billions of dollars worth of bitcoin in recent years to become the largest corporate holder of the cryptocurrency. This decision caused Strategy’s stock to rise rapidly, albeit with volatility.
CEO Ryan Cohen is leading GameStop’s foray into cryptocurrencies as part of his latest effort to revive the struggling brick-and-mortar business.
Under his leadership, GameStop has focused on cutting costs and streamlining operations to make the business profitable. The company acknowledged that this move could expose it to the volatility associated with cryptocurrency prices.
“Bitcoin, for example, is a highly volatile asset and has experienced significant price fluctuations over time. Our Bitcoin strategy has not been tested and may prove unsuccessful,” GameStop said in a Securities and Exchange Commission filing.
Alongside the cryptocurrency announcement, investors also celebrated GameStop’s rise in fourth-quarter results. The firm reported net income of USD$131.3 million, more than double the USD$63.1 million it earned in the same quarter last year.
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GameStop has had a wild ride over the past decade
Bitcoin, the world’s largest cryptocurrency, has experienced a roller coaster ride since President Donald Trump won re-election. After shooting up and surpassing the USD$100,000 milestone, bitcoin has declined about 18 per cent from its record high to a recent price of approximately USD$88,000.
Conversely, GameStop’s own history has been both tempestuous and high profile.
Over the past decade, GameStop has undergone a remarkable transformation, marked by both struggles and unexpected success.
In the early 2010s, GameStop was a dominant player in the video game retail space. However, as digital gaming and online marketplaces like Steam and Amazon gained popularity, the company’s brick-and-mortar model began to decline. By 2019, GameStop’s financial struggles were evident, leading to a series of leadership changes and attempts at restructuring.
However, in 2021, GameStop’s fortunes took a dramatic turn due to the rise of meme stocks. Retail investors, particularly those from the Reddit community r/WallStreetBets, began buying GameStop stock, driving its price up to unprecedented levels. This surge was fuelled by a combination of short squeezes and a broader movement against institutional investors.
The company’s stock went from under USD$20 in early 2021 to an all-time high of nearly USD$483 in late January.
Despite the volatility, GameStop survived by embracing e-commerce and shifting its focus towards digital initiatives, including NFTs and cryptocurrencies. Cohen’s leadership has refocused the company on becoming a technology-driven retailer.
