GME Stock Forecast as eBay Rejects GameStop Acquisition Bid

Key Insights

• GME stock crashed after eBay rejected its $56 acquisition bid.
• eBay argued that the purchase was not credible.
• GameStop has a much lower market capitalization than eBay.

GME stock remained under pressure this week after eBay rejected GameStop’s proposed acquisition approach, citing concerns over the credibility of the offer.

Shares of the gaming retailer fell toward their lowest level since late March as investors questioned how the company could finance a deal targeting one of the largest e-commerce firms in the United States.

eBay Rejects GameStop Proposal

eBay, the $50 billion e-commerce company, sent its response to the recent takeover bid from GameStop, the popular gaming retailer.

The company said that it will not accept being acquired by GameStop, arguing that the deal did not appear to be credible.

One of the main concerns centered around scale. GameStop currently carries a market capitalization below $12 billion, while eBay’s valuation remains near $50 billion.

GameStop has a market capitalization of under $12 billion compared to eBay’s ~$50 billion. It also has over $9 billion in cash and short-term investments.

As such, even if GameStop decided to use all its equity and cash to fund the acquisition, it would need billions of dollars. It would do that by possibly borrowing over $40 billion to fund the purchase, a sizable amount that would be difficult to raise.

GameStop has said that it has inked a financing agreement with TD Securities. However, TD’s offer is not binding and has some notable caveats such as having the two companies maintain their investment grade rating.

Still, eBay stock has remained close to the year-to-date high despite the fear that GameStop was not serious in its pursuit. That could be a sign that investors anticipated that it would ask GameStop to pay more money for the purchase.

GameStop’s Business Has Been Struggling Amid Rising Changes in the Industry

GameStop’s business has been under intense pressure in the past few years as consumers changed how they buy gaming consoles and games. Most people prefer using online game stores to buy these products, and this trend will likely not change any time soon.

As a result, its annual revenue has been in a constant decline, moving from over $8.7 billion in 2018 to $3.6 billion last year. Its revenue jumped in 2021 to $6 billion in 2021 as it became a darling among retail investors in the US.

Analysts are pessimistic about GameStop’s business, with most of them predicting that its revenue will continue falling in the coming years.

As a result, the company has embarked on a cost-cutting strategy to boost its profitability. Early this year, the management, led by Ryan Cohen, noted that it would close hundreds of stores in a bid to focus on its most profitable ones. Such a decision has also led to a sharp decline in the number of workers.

GameStop’s efforts to diversify its business have not worked out well. For example, it launched its collectibles business a few years ago and closed it when it failed to gain traction among users.

The company also entered the Bitcoin treasury industry, a move meant to replicate Michael Saylor’s Strategy. It did that by buying 4,709 coins for $500million , whose value has dropped over time.

GME Stock Price Technical Analysis

The daily chart reveals that the GameStop stock price has crashed in the past few days, moving from a high of $26.85 earlier this month to $22.6 today.

There are signs that it has formed a double-top-like pattern, a common bearish reversal sign in technical analysis.

The stock has crashed below the 50-day  Exponential Moving Average (EMA), which is a sign that bears have prevailed.

Therefore, the stock will likely continue falling as bears target the next key level at $22, its lowest level in March this year. A drop below that price will point to more downside, potentially to the key support at $20.

Meanwhile, any recovery above the $25 resistance area would weaken the current bearish structure and potentially reopen momentum toward recent highs.

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