GameStop Needs An Aggressive And Coherent Crypto Business Model If It Wants To Silence The Bears

Summary GameStop’s stock dropped after announcing a miss on Q1 revenue and $2.25B in interest-free convertible notes. Its cash and Bitcoin holdings remain substantial. Despite trading at a large premium to net asset value, I see GME’s brand as a unique intangible asset for a potential crypto-driven business transformation. Other companies leveraging crypto treasuries have attracted significant NAV premiums; GME could do the same by partnering with crypto industry leaders and content creators. While GME hasn’t yet justified its premium, I view it as a speculative buy with high potential if management embraces a bold web3 strategy and leadership. Last week was not a good week for GameStop Corp. ( GME ) as it dropped from over $30 to close it at $22.14. Q1 2025 results showed a miss in revenue, and the company announced an additional $2.25 billion in interest-free notes that will be convertible at $28.91. GME is getting free money in exchange for diluting some of the upside in the stock, which should be seen as a positive. The $2.25 billion raised will be added to the already substantial cash balance of about $6 billion and 4,710 Bitcoin that are worth around $0.5 billion. The company would now have $3.75 billion in interest free debt, leaving about $5 billion in net cash and Bitcoin. Assuming little to no value given to the legacy operations, GME is trading at about a $5 billion premium to its cash. Analysts have asked the obvious question – why would an investor pay such a high premium for a company’s cash and Bitcoin holdings when there are countless more efficient options to do the same? Wedbush has a bearish target of $13.50 based on this thesis. The consensus on Seeking Alpha is the same. In April, I wrote a bullish article on GME , the last bullish article on the stock, with several analysts opining bearish or neutral stances since then. My thesis was that the company has an ability to deploy its cash into crypto and web3 initiatives and benefit in a unique way not available to a typical investment fund. The interest-free notes are part of that thesis. I feel like a contrarian and Devil’s Advocate as I will be doubling down on my theory in this article, with a caveat. Analysts don’t value the $5 billion premium that is essentially an intangible asset on GME’s ability to use its brand and popularity to drive a successful crypto-based business. I blame the company, as so far it hasn’t leveraged that brand name. My bet is that it eventually will. There are $3.75 billion worth of interest-free convertible notes betting the same. Data by YCharts Crypto NAV premiums are abundant across the market There have been numerous mid and small-cap stocks looking to jump on the Strategy Incorporated ( MSTR ) NAV premium bandwagon. Cantor Equity Partners ( CEP ) is a shell that has been trading steadily above $30 for the last several weeks as it has a pending merger with Twenty One Capital (XXI). The CEO will be Jack Mallers, co-founder and CEO of Strike, and a fairly well-known name in the crypto sphere. It will launch with a treasury of 42,000 Bitcoins and will be raising $585 million combined between a PIPE financing and convertible notes. The reference price for the Bitcoin contribution and PIPE is $10 while it’s $13 for the convertible notes, subject to change based on the price of Bitcoin at closing. Mallers proposes to turn XXI into the ultimate vehicle for the capital markets to participate in Bitcoin , using terms like Bitcoin per share instead of earnings per share to push the idea behind the business model. The most volatile example of a recent crypto treasury deal is likely SharpLink Gaming, Inc. ( SBET ). It rose from $6.72 to over $100 in a few days after announcing a $425 million private placement priced at $6.15 in order to initiate an Ethereum treasury strategy. Joseph Lubin, the Founder and CEO of Consensys and Co-Founder of Ethereum, became the company’s Chairman. The stock has since crashed back to $9.21 upon close of the deal and purchase of $463 million of ETH, making SBET the largest publicly traded ETH holder. My favorite example is K Wave Media Ltd. ( KWM ), which I recently wrote about . A press release since then underscores the company’s ability and desire to merge its Bitcoin and crypto initiatives into its core business of Korean entertainment content. NFTs have been mocked as “Dutch tulips” or vehicles for money laundering. But in the case of a content generator and merchandiser, particularly one in South Korea where pop stars have been known to generate large, rabid followings, I believe that this type of business model opens the door for many lucrative opportunities. How these examples relate to a bullish thesis on GME What bearish analysts like Wedbush fail to see is the consistent and substantial NAV premiums generated by crypto treasury strategies. Likely because other than MSTR, they generally fall under the radar with valuations of less than $1 billion. GME may be valued at over $10 billion, but it trades like a small cap and attracts the same kind of retail crowd. Assuming a reference price of $12.50 for CEP (the price of Bitcoin has increased about 25% from the time the deal was first announced), it’s trading at about a 200% premium to my estimate of its pro forma NAV. Based on SBET’s close of $9.21 on Friday, I estimate that it’s trading at about a 40% premium to its NAV. However, it traded as high as 20 times its NAV at the peak of its hype of $124 per share. I believe that most of GME’s retail traders aren’t looking for long-term, sustained value. They are looking for a massive pop on news and/or hype, like what occurred on SBET. What CEP and SBET have that GME lacks are crypto heavyweights as leaders. Ryan Cohen has his own pedigree as an investor and founder and is a popular figure among the meme stock crowd, but he doesn’t have a significant reputation in the crypto space. Skeptics in GME’s crypto initiatives may consider him to be a pretender. A crypto heavyweight introduced as part of an aggressive Bitcoin or crypto strategy likely significantly increases GME’s valuation in the near-term, even if it’s unsustainable in the long run. KWM is an example of a company that is directly tying its core business in with Bitcoin. GME’s legacy retail business has been on the downtrend, but leveraging web3 and teaming with content creators could reinvigorate the business. The company created its own NFT marketplace back in 2022, but it was shut down last year, citing regulatory uncertainty in the crypto space. While the first attempt wasn’t a success, it shows that GME is willing to test out business models that leverage crypto or web3. If it positions itself in a way similar to KWM, GME won’t be seen as a bandwagon jumper. GME has a significant brand name, particularly with millions of retail shareholders. It can and should leverage its name to entice crypto industry leaders and content creators to partner up with it. Conclusion: speculative buy as the path still remains unclear, but potential remains high I disagree with bears on the future of GME, but I can understand their thesis. They are looking at GME strictly as an investment firm, as the legacy business is worth very little. An investment firm that trades substantially above its NAV of cash and Bitcoin. Two very liquid assets that shouldn’t carry any material liquidity premium as part of a fund. Much of that is GME’s fault. It has so far failed to justify a premium by generating a coherent and value-adding crypto business model. MSTR, CEP, SBET and KWM are four of numerous examples of companies that have generated increased interest in their stocks by aggressive pursuing crypto business models. Contrast that to GME. It has purchased 4,710 Bitcoin, which is about 10% of its net assets and 5% of its market cap. The market is rightfully unimpressed by GME’s move into crypto and needs more than just empty headlines and promises. GME certainly has the name brand power to attract crypto heavyweights into the fold. But to do so, management must share some of the power and potentially be dragged in a direction that isn’t completely in alignment with its current vision. It remains to be seen if the management team is willing to make the changes necessary to be seen as a serious player in web3. One which merits a valuation well above 2x its book value. I am waiting on the sidelines, but the right news would entice me to buy into the stock – likely at higher prices – for a swing trade. For traders and investors who are bullish and holding at these prices, I think they have a favorable risk to reward trade-off. It’s a waiting game for them. With the stock price dropping last week and settling below the $28.91 strike price of the latest round of interest-free convertible notes, retail investors can take solace in the fact that institutional investors are betting large amounts of money that the company will land significantly above that price at some point over the next several years.

Source: Seeking Alpha