- GameStop could earn more from interest on its $4 billion cash pile than its core retail business.
- Recent hype sparked by the return of Roaring Kitty has allowed the company to raise $3 billion.
- The company could see $200 million of annual interest income by simply holding short-term Treasurys.
GameStop has raised a lot of cash recently, and the struggling video game seller could make more money than its core retail business has in recent quarters by simply collecting interest on its $4 billion cash pile.
Renewed hype in GameStop stock, thanks in part to retail-trading icon Keith Gill's return to social media, has helped the video game retailer raise $3 billion in cash from multiple secondary offerings.
GameStop sold about 45 million shares in mid-May at around $21 each to raise $933 million. The company then sold 75 million shares at a price of about $28.50, according to analyst estimates. The stock was trading at about $30 a share on Wednesday afternoon.
At the end of its fiscal first quarter, GameStop had about $1 billion in cash, bringing its total cash pile to about $4 billion following its most recent share sale.
If invested in one-year Treasury bills, which yield just over 5%, that $4 billion in cash would generate upwards of $200 million in annual interest.
GameStop said in a recent SEC filing that it intends to use the cash it's raised for "general corporate purposes, which may include acquisitions and investments in a manner consistent with our investment policy."
The potential $200 million in interest earned on its $4 billion cash pile would eclipse GameStop's operating income from its core retail business, which hasn't generated profits on an annual basis since its fiscal year 2019.
Since then, it has generated a cumulative $969 million in operating losses.
While the strategy of collecting interest income from Treasurys likely won't be enough to sustain a premium valuation for the stock, it could buy the company time to initiate any turnaround strategy that Cohen has in the works.
Representatives for GameStop did not respond to a request for comment.
Wall Street analysts are still pretty bearish. Wedbush analyst Michael Pachter hasn't been impressed even after the company raised $3 billion in just a few short weeks.
Pachter said in a Tuesday note that he expected GameStop to sell 75 million shares at an average price of $40, higher than the $28 price it secured.
That $12 gap represents an additional $900 million in proceeds GameStop could have raised, which would have given the company even more optionality in planning for the future.
Pachter rates GameStop at "Underperform" with an $11 per share price target, representing potential downside of 63% from current levels.
"We are lowering our price target to $11.00 from $13.50 to reflect low-than-expected proceeds from the share offering. Our revised price target reflects roughly $9.50 per share of net cash, plus a going concern value of roughly $1.50 per share," Pachter said.