Summary

• While generally against companies holding Bitcoin, I think there are exceptions, such as (Micro)Strategy and potentially GameStop, due to their unique circumstances.

• GME holds significant cash ($4.6 billion) with minimal long-term debt, but lacks a profitable core business model since the Meme Stock era.

• I think GME could benefit from investing in Bitcoin, potentially pivoting to become the first "Bitcoin Consumer Bank" by leveraging its retail presence to offer Bitcoin-related services.

• This said, the high valuation of GME with a market cap of $11 billion might not justify a Bitcoin investment if Bitcoin's value doesn't increase or if consumer/investor interest doesn't follow.

• While I do not recommend new investments in GME due to high option costs and current valuation, holding a position might be justified if anticipating a Bitcoin strategy announcement as a catalyst.

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While I am bullish on Bitcoin (BTC-USD), I generally oppose the idea of companies adding Bitcoin to their balance sheets. I think a company should focus on its core business, not on financial engineering through speculative investments. If a company's best use for excess capital is Bitcoin, it is likely not a company I am interested in investing in.

This said, there are exceptions. One is Strategy (MSTR), a company I just recently covered and the first publicly listed company to hold Bitcoin on their balance sheet. While I am not particularly bullish on MSTR (because of a hefty NAV premium that I don't see justified by Saylor's actions), I do recognize Saylor's original master move in adopting Bitcoin.

Another exception, in my view, could be GameStop Corp. (NYSE:GME). In this article, I explain the reasons why I think GME should adopt Bitcoin on their balance sheet, why they might become the first "Bitcoin Consumer Bank" and how investors could play such a trade.

Four years after the 'Meme Stock' craze: lots of capital, no ideas

It's been four years since the concept of a "Meme Stock" was born. In 2021, some companies started seeing their stock's performance skyrocket as a result of retail investors piling in for no other reason than liking a company. GME was the original Meme Stock of 2021, with Netflix even launching a documentary about the story.

GME Income Statement, past 3 years (Seeking Alpha)

Four years after the Meme Stock craze, GameStop is nowhere closer to having a profitable, healthy core business. The company only registered two quarters of positive Operating Income (see image above), and it has been overall unprofitable on a yearly basis since 2020.

GME Shares Outstanding, History (CompaniesMarketcap.com)

One thing the company did right, in my view, is cashing out on the Meme Stock bonanza by issuing new shares. Diluted Weighted Average Shares Outstanding grew from 260 million in 2021 to more than 350 million in the last Trailing Twelve Months (Seeking Alpha data). Data from CompaniesMarketcap.com shows current shares outstanding are at more than 440 million (see chart above).

As a result of this dilution, GameStop currently sits on a hefty $4.6 billion in Cash & Equivalents (Seeking Alpha TTM data). This is roughly the same amount as the overall yearly revenue of the company. This capital has not been deployed to any effect so far, and it has been significantly increasing since 2021, when it stood at roughly $500 million.

GameStop's cash position is especially impressive when compared to the minuscule amount of long-term debt the company is exposed to, at $9.6 million. Even considering Capital Leases and other Non-Current Liabilities, GameStop's overall total long-term liabilities only amount to about $340 million and pale in comparison to the company's cash pile.

I see the (very) positive Net Debt position as the only real thing to be excited about when it comes to GameStop. The rest of the picture is grim, in my view: sales have been declining steadily since 2020 and despite an effort in reducing Selling & General Admin expenses, GameStop has not shown any significant progress in any profitability metrics. This is also the reason why I believe times are mature to pivot GME's business, and why a Bitcoin play may be a smart move.

Why a Bitcoin play makes sense for GME

Given the lack of progress with a business turnaround, I believe GME is in a unique position in that it would benefit from deploying part of its cash to buy Bitcoin.

The main reason behind my belief is the fact I don't see management discussing or proposing any clear turnaround plan for GameStop's core business. Management has not held a conference call to discuss earnings' results in a long time - nor for 2023 results, nor for any of the 2024 quarterly results. As a matter of fact, GameStop's CEO and its largest shareholder, Ryan Cohen, has not really engaged shareholders or provided any sort of clear guidance on what the company should do with its cash.

I think it is worth noting the company is operating in a secularly declining industry of gaming and entertainment retail shops. I believe GameStop has little chances of significantly turning around its core business. The only viable solution I see is pivoting the business away from selling video games and gaming gear, using the company's cash position to that end.

Ryan Cohen has consistently increased his position in GameStop since 2020, even as recently as 2024. This, in my opinion, signals he is intending to do something about GameStop's business, which inevitably means using its hefty cash position.

Interestingly in my view, GameStop has very recently announced a new investment policy, which allows its CEO to invest in equity securities and other financial instruments. Previously, the company was only allowed to invest its cash in short term, low risk financial products. I see this recent move as a signal that Cohen may want to put GME's cash to use by investing in something else, rather than trying to turnaround a difficult business.

Ryan Cohen Tweet with M. Saylor (X dot com)

While this does not necessarily mean Cohen will choose to invest in Bitcoin, a recent picture he posted meeting with Michael Saylor also makes me think there is a chance he is seriously considering such a move. Personally, I find value in this idea - something I will cover next.

GME: First Bitcoin Consumer Bank?

Investing in Bitcoin, in my view, would allow GameStop to become the first "Bitcoin Consumer Bank", as opposed to Strategy, which I see developing as the first B2B-focused "Bitcoin Bank" (the company defines itself as a "Bitcoin Treasury Company" since last week).

By leveraging its strong existing retail footprint, GameStop could close the "physical" gap of Bitcoin for consumers, accelerating its adoption. GameStop could for example offer Bitcoin ATMs, Prepaid Cards to purchase Bitcoin, educational material and other Bitcoin related services to customers.

This strategy could be complementary to a simple "HODL" of Bitcoin in GME's balance sheet - which would still be the main point of deploying cash to buy BTC. It could also be rolled out relatively inexpensively - Bitcoin ATMs, for example, tend to pay for themselves via their transaction fees and have a small physical footprint, making them ideal to fit into existing GameStop shops.

I see this potential strategy as better than what MSTR's has shown so far to justify trading at a premium against its BTC holding. Except for issuing some convertible notes in Q3 last year, MSTR has so far only issued new shares to "capture volatility" and buy Bitcoin, cashing in its NAV premium as a result. GameStop could go one step further, claiming it is helping Bitcoin adoption with retail investors and consumers by providing support via their retail shops. Eventually, the company may even explore providing some sort of Bitcoin-backed financial solutions to consumers, should Bitcoin mature to a global reserve asset.

GME's valuation, which at $11 billion in Market Cap I find it hard to justify, considering an underlying unprofitable business, could also benefit from adopting Bitcoin. Deploying $4 billion into BTC would "justify" the company trading at a premium against its Cash (now "turned" Bitcoin) holdings.

Finally, I think there is also value in considering the unique dynamic of "Meme Stocks" retail investors in the context of a Bitcoin bet. GME, as the original meme stock, may manage to excite their retail investor base with such a Bitcoin announcement. As a result, the stock may skyrocket regardless of the Bitcoin bet itself, and only mechanically because of increased retail interest. This would allow GME to cash out by diluting shareholders once again - which has been their prime strategy to raise funding in the next five years.

Obviously, this entire Bitcoin play would only make sense in the long run for GME in the context of Bitcoin maturing into a global reserve asset. The point of this article is not to discuss the value of such a bet, but if Bitcoin ends up going nowhere long term, the entire idea of holding it on a balance sheet of a public company would be nonsense. Whether GameStop's CEO thinks Bitcoin is a bet worth taking, remains to be seen. I will cover this point, along with other risks, in my "risk" section below.

Risks

The main risk with investing in GME in the context of a potential Bitcoin trade is the fact that the stock is already very expensive. The market cap of $11 billion, considering the company is not profitable and sits on a Net Debt position of about $3 billion, is only due to "unjustified" (relative to fundamentals) retail investors' interest, in my view.

Assuming GME deploys $4 billion in BTC, and applying a NAV premium similar to that of MicroStrategy (1.8X at the time of writing), the result would still be a company worth $7.2 billion, ~35% less than GME's current valuation. While GameStop does have a legacy business, this is not profitable - unlike that of Saylor, which sells AI Software solutions and registered a 50% year-over-year increase in subscription billings as of Q4 2024. In my view, GME's valuation would be hard to justify even in the context of a bullish Bitcoin outlook.

Another risk relates to the Bitcoin play simply not paying off. This could happen if Bitcoin crashes, if GameStop doesn't manage to solicit any interest from their consumer and/or investors base, or as a combination of the two elements.

Further risks to be considered include GME facing legal issues if they roll out any form of Bitcoin products to consumers, as well as the company depleting their only capital in a bet that may not pay off, at a time when their core business is not profitable.

Conclusion: I wouldn't enter GME, but I would HOLD if I had it

Due to the past high volatility GME has experienced, GameStop's options are very expensive. This makes a trade on a potential Bitcoin announcement unattractive, in my view.

Even assuming that GME announces they are entering some sort of Bitcoin trade at the time of their next earnings, options have a limited upside. Should the company's shares see an uptick of 20 to 30% after such an announcement, there is only about a 40 to 50% upside with 20th June $27 Calls at the time of writing. And that's without considering that a Bitcoin announcement may not trigger an increase in GME's share price, at all.

Due to the high price tag of GME's options and its already hefty valuation, I struggle to find a way to benefit from a potential announcement of a Bitcoin play by GME.

In my view, the stock is only worth holding for those investors who are already exposed to it. Since this is effectively a Meme Stock that does not trade on fundamentals, it may be worth holding to see whether a potential Bitcoin announcement may act as a catalyst for a new bull run.

Investors that are particularly risk-prone and bullish on Bitcoin may also enter the stock as a leveraged, uncertain bet on Bitcoin. Personally, I won't do that. This is despite I find it fascinating that GME could become the first "Bitcoin Consumer Bank", and I think this strategy is a good fit from a managerial and business standpoint.