Shares of video game retailer GameStop (GME) are down at the time of writing, as investors react to its plan to acquire marketplace platform eBay (EBAY). The proposed deal immediately raises questions because eBay is much larger and more established, while GameStop is still trying to turn its business around. As a result, Wedbush analyst Michael Piccolo said that the market will likely keep debating whether the deal can actually happen, which could keep volatility elevated.
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Unsurprisingly, the biggest concern is how GameStop would fund the acquisition. The company has about $9 billion in cash and a $20 billion commitment from TD Bank (TD), but eBay’s proposed deal price of $125 per share values the transaction at around $56 billion. That leaves a major funding gap. Because of this, Wedbush believes that GameStop may need to issue a large number of new shares in order to complete the deal. The risk with this plan is that even strong meme-stock attention may not be enough to offset the dilution investors would face.
It is also worth noting that investor Michael Burry exited his position in GameStop, which Wedbush flagged as a potential warning sign, since he had been one of the more recognizable long-term bulls on the stock. Therefore, the deal is being viewed with skepticism as investors focus on whether the financial math and strategic logic actually work.
Is EBAY Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on EBAY stock based on 10 Buys, 14 Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average EBAY price target of $108.87 per share implies 3.4% upside potential.
