GameStop Explores Crypto Investment, Driving After-Hours Gains

GameStop (GME) witnessed a significant surge in after-hours trading on Thursday after CNBC reported the video game retailer's interest in investing in cryptocurrencies, including Bitcoin (BTC-USD). The report clarified that the company may not proceed with the investments and remains in the exploration phase. However, the stock initially spiked by 20% after closing, before retracing some of its gains.

Speculation Sparked by CEO's Tweet

Over the weekend, a social media post by GameStop CEO Ryan Cohen fueled speculation about the company's intentions towards cryptocurrencies. Cohen shared an image of himself with Strategy CEO Michael Saylor, who is known for his strong support of Bitcoin and has led his company to acquire over 447,000 bitcoins.

Investment Model Parallels

In a statement announcing the company's name change on February 5th, Strategy positioned itself as "the world's first and largest bitcoin treasury company." Its shares have witnessed a 370% increase over the past year, driven by the company's ongoing Bitcoin purchases amidst a substantial rally in the cryptocurrency's value.

Analysts like Sherwood's Luke Kawa have suggested that investors may be speculating on GameStop adopting a similar Bitcoin investment strategy to that of Strategy. Kawa noted that Cohen's tweet was met with positive market sentiment, indicating traders' hopes that he might use a portion of GameStop's $4.6 billion cash reserves to follow Saylor's playbook, which revolves solely around Bitcoin purchases.

Board Approval for Capital Deployment

In December 2023, GameStop's board granted Cohen the authority to utilize the company's capital for investments, allowing the video game retailer to utilize its cash like a holding company, akin to the Daily Journal (DJCO) or Berkshire Hathaway (BRK-B, BRK-A).

Despite reaching a high of $64 per share in May 2024 amidst the meme stock resurgence, GameStop's shares have since declined and are approximately 15% lower in the past month. The company's fourth-quarter earnings have yet to be announced.