Perennial meme stock GameStop (GME 1.96%) has taken its shareholders on another roller-coaster ride of volatility so far in 2025. In May, its stock price soared to $35.81, near a 52-week high, but it has since plummeted to under $23 per share. It's currently down 30% year to date.
The niche retailer continues to grapple with a changing operating environment as the video game industry increasingly shifts toward digital content that can be directly downloaded to players' machines. In its efforts to stay relevant, GameStop has expanded its merchandise offerings into collectibles and gaming-related apparel. But perhaps its biggest pivot has been its new Bitcoin treasury strategy: GameStop plans to accumulate large amounts of the cryptocurrency on its balance sheet.
Could this crypto gamble revive GameStop's fortunes?
Image source: Getty Images.
A silver lining at the start of 2025
GameStop's retail business faces several challenges, yet its fiscal 2025 first-quarter results indicate that its ongoing restructuring effort is working.
Although its net sales declined by 17% year over year to $732 million in the period (which ended May 3), that figure includes the impact of closing more than 590 underperforming stores in the United States during its fiscal 2024. It also exited some European markets, and factored into its Q1 results some costs relating to its further plans to close its operations in Canada and France this year.
Throughout that period, though, its strategic push into collectibles, including toys and trading cards, has been a winning move for GameStop. Sales in that category grew by 55% over the past year and now represent 29% of the top line.
This shift in the sales mix, coupled with the company's streamlined cost structure, is translating into improved profitability and positive free cash flow. In the fiscal first quarter, it booked adjusted earnings per share (EPS) of $0.17, a sharp contrast to its loss of $0.12 in the prior-year period. Wall Street analysts predict that the trend of bottom-line improvements will continue. On average, they forecast fiscal 2025 EPS of $0.73, more than double its $0.33 result last year.
Even as top-line growth remains elusive for GameStop, it's demonstrating resilience and some fundamental strength.
GameStop's Bitcoin strategy
What makes GameStop particularly interesting as a potential investment now is its well-capitalized balance sheet. It ended last quarter with $6.4 billion in cash -- a significant amount relative to its $9.9 billion current market capitalization. This liquidity will provide the company with both time and flexibility to pursue its strategic turnaround.
Meanwhile, inspired by the success of Strategy (formerly known as MicroStrategy), which pioneered the conversion of corporate cash holdings into cryptocurrency, GameStop is moving in a similar direction. In May, the company acquired 4,710 Bitcoins for approximately $513 million -- about 8% of its cash position.
The company has already doubled down on its commitment to Bitcoin, raising additional cash to fund further purchases through a recent private offering of $2.25 billion in 0% convertible senior notes. This debt and equity hybrid enables the company to effectively borrow money without paying interest. Investors will benefit from their ability to convert those notes into shares if GameStop's stock price surges, offering the potential for stock-like gains with lower risk. For equity shareholders, the upside potential is unlimited, assuming the Bitcoin strategy succeeds and enhances the market's perception of GameStop within the context of a broader corporate comeback.
Reasons for caution
As compelling as GameStop's newfound crypto ambition may seem, its increased debt burden and its new Bitcoin holdings shift the company's risk profile, adding a layer of complexity. The more Bitcoin it adds to its balance sheet, the more detached the stock price will become from the state of its retail business -- for better or worse.
While some highly optimistic bulls have offered scenarios in which Bitcoin's price could climb to $1 million and beyond in the coming years, there's also the possibility that it could fall. Even a modest correction in Bitcoin's price to a level below GameStop's average cost basis could lock the company out of further financing as its unrealized losses mount. That would hinder the stock's recovery.
My GameStop stock prediction
While I acknowledge that the numerous uncertainties will likely keep shares of GameStop volatile, I'm cautiously bullish and believe the latest sell-off offers an attractive buy-the-dip opportunity.
For investors who think Bitcoin's price will head higher and who are convinced that GameStop's retail transformation is just getting started, a small position in the stock could have its place in a diversified portfolio. My prediction is that GameStop's stock price will revisit its recent high above $35 within the next year.
