Ryan Cohen Makes The Case for Why Gamestop Should Buy Ebay

Pleasure.

From my father. I saw growing up, I didn't spend that much time in school. I would go to his office and he taught me hard work. And it wasn't by words, it was by action. And so he woke up at 4:30 in the morning. He went jogging in the middle of the winter when it was minus 30 Celsius with the wind chill factor, didn't make a difference to him. And then he was at the office by 6:00 a.m. and he was unloading pallets of glassware in the back, sweating profusely. He would take off his suit jacket and he would just sweat and he loved it. And then he would go to the front of the 25,000 square foot building and he did everything. He did sales, he did accounting, he was jack of all trades and he would sit at his desk at his typewriter. This was even though typewriters were gone and he liked this typewriter. And he did it all. So he didn't consider desk work work. It needed to be physically laborious to be considered work. So if you ever saw me on the computer and I would say I'm working, it's like that's not work. You're not work if you're not sweating. And he pretty much respected people who actually did physical work. If it was anything desk related, then it was useless. So, it's where I got my education from.

Definitely. Why?

I mean, I saw the opportunity to be able to scale something beyond a local market. And so, there's the opportunity to grow and to touch consumers globally and leverage. I mean, at the time there was like Overture, which was part of Yahoo and Google, but it's pretty incredible to be able to locally scale something globally by using performance marketing and being able to directly measure return on investment in real time. And so I became very used to really good at AdWords and Yahoo at the time.

I was, or Overture at the time. But that's how I got my start.

I felt most comfortable in that area. But I saw the upside. I saw the opportunity. I frankly though, what makes me feel good is physical work. So like I'm doing anything physical related, sweating, whatever it might be, it definitely feels personally satisfying, but you don't have the same upside in terms of being able to, you know, if I would have been a glassware importer, I wouldn't have been able to scale and build a big business like Chewy. So yeah.

We, I was about to get into actually the online jewelry business and I bought hundreds of thousands of dollars worth of online jewelry. I didn't know anything about it. But I assume the margins were high because it was jewelry and I wanted to build something online and so spent months basically building out the website, the front end, the back end, the distribution. And then I was shopping at a neighborhood pet store. I had a poodle at the time. I grew up with a Labrador. And basically I was like, I understand this category. It was interesting because when you look at the pet category, it was pretty fragmented. You had neighborhood pet stores and they had a very specialized experience. They knew the products really well. It was higher-end products. There was Petco and Petsmart. And then there was Amazon. And Amazon had been in the pet business since the late 90s, but they weren't really disrupting the status quo in terms of the brick-and-mortar model, either the independents or Petco and Petsmart. So, I love the experience. I would go in and it was very high-touch. Actually the name of the store was Mary's Pet Shop and she knew Tyle, which was my poodle. She knew her products really well. She had great customer service. And so it was very clear to me, and I like that pet was consumable and it was the ability to set up an auto-ship business. So basically sold all of the jewelry for like 80 or 90 cents on the dollar luckily and within a few weeks totally pivoted to selling pet products online.

Amazon is good at everything, but when it comes to really a specialized experience, they weren't. I mean they were a small part of the market. The market was largely offline. So, Amazon was in the backdrop and nobody wanted to invest in Chewy. By the way, we started off as Mr. Chewy and then I wanted to shorten the brand to Chewy. So, changed the brand, got rid of the Mister in like 2012. I bought the domain name for like $50,000, which ended up being a good investment, but nobody wanted to invest for two reasons. One is Pets.com was in the backdrop and no VC wanted to invest in Pets.com 2.0. And then after it was 'well then Amazon is going to crush you.' And it's a very low margin business. Like there was a lot of people trying to sell pet products at the time and they're not there anymore. The market is pretty much Chewy and Amazon.

Every no was part of the process. Like no means yes. They're just not there yet. So if someone doesn't see it, then it's going to be somebody else. But no, it was like a hundred investors passed before we found our first investor.

I wanted a lot of capital because I wanted to build a really big business. So, we ended up our first raise was $15 million, which is still a lot of money, but it was really a lot of money at the time.

And we raised money. The individual Larry Chang, he actually sits on the board of GameStop. And the group was Valition Capital and they went out on a limb. I don't think they really fully appreciated, because it wasn't like we said everybody passed on this thing besides you, but it worked out well for them.

It wasn't good. I figured out really quickly that retirement, I see other young people that aren't working and I don't know, they get fulfillment from traveling and going on vacations and spending money, and it's not enough. It's just so meaningless. It doesn't give me any kind of inner fulfillment. So I was retired for like a few months and within a few weeks I was like, how do people do this? This doesn't make any sense. There's no enjoyment. So I started to look for my next project.

No, it was more. I want to build. I want to disrupt. Like to be a pain in the ass, but I ultimately feel productive.

Everybody hated GameStop like forever. Everybody's still like, there was, when you look at the forces against it, the fact that the business was at the time being disrupted by digital and so massive secular headwinds going against the business for a long time. So you had basically this in the backdrop. You had a company that was highly shorted. So I like to take the other side of the trade and I guess it's the contrarian in me that was attracted to the business to begin with. And I invested originally passively in 2018. And then the company had a hedge fund that was going after them to get board representation. The company is really a piece of crap. And the board was totally entrenched, like basically not invested in the business. So, they actually originally contacted me because they figured that I was going to be an ally against the hedge fund and they figured they got what's called the nobo list and they could see who their large shareholders were. So, I owned less than 5% but still a pretty meaningful stake. And they invited me onto the board and then I learned why. They figured I was going to be a patsy and support them and they were going to get basically someone that had business experience but would be on their side. And that definitely was the wrong calculation. So, I said no. And then ultimately I increased my ownership beyond 5%. I started negotiating with them and then I got three board seats. I joined the board along with two independents from Chewy and we joined the board I believe January 11th of 2021.

Everybody was attracted to like the sexy tech names. And so this is like a shitty brick-and-mortar retailer that's being disrupted by digital downloads. Management team was crappy. The board was crappy. They weren't really doing much and so it was easy to bet against it and for a long time that was the right play because the company wasn't doing well so it made sense. But I like taking the other side of the trade. I figured that there was an upcoming console cycle and the business was going to do better than needed to, just do a little bit better than the consensus.

I was in a position where I wanted to be involved, but I didn't want to be the CEO. So, I ended up hiring a management team, a lot of people from Amazon and Chewy and that was a terrible mistake, frankly. I spent the first 18 months on the sidelines involved strategically, but not really day-to-day operationally. And made mistakes in terms of bringing in people from the outside that didn't understand the actual business. Then I realized that this was not going well and I became the CEO.

It actually became a lot easier because when you have a lot of people involved, you need to manage people's emotions and everyone wants it to be their idea and egos and control. And once I was in the driver's seat, I was able to talk directly to the people doing the work and actually get the real truth, the lay of the land in terms of what was going on. And so I had, you know, when you're at the board, you're seeing what everybody wants you to see, but you're not seeing the day-to-day operations. So it actually became much easier to get stuff done.

If you so in terms of the shareholders, we have the most unique amazing group of shareholders for a public company. And I would say, I mean we've taken, or I've taken a pretty unconventional approach to running a public company because most public company CEOs or CFOs spend a lot of time talking to Wall Street and institutional investors. And you know, time is the most finite commodity. And that's time that you could be spending on operations. And so I frankly didn't have the luxury of being able to spend time with institutional investors because I was focused on fixing this business and cutting cost and figuring out other areas where we could make up for growth because of the decline in hardware and software. Right? So, we have a very unique shareholder base that underwrote an investment in GameStop based on my track record. Whereas institutional investors have a more typical approach to doing due diligence and a lot of that is meeting with management teams, having forward guidance, everything else that public company executives do. Most of that stuff ends up not necessarily being a good use of time and my time was better spent on the actual business. So, I have a lot of admiration for the retail shareholders that underwrote the investment based on my precedence and based on my alignment with shareholders in general because I haven't got paid. I just, you know, I haven't taken a dollar of compensation out of the company. And my investment comes from buying shares in the open market. So, it's pretty special.

So, we had the highest net income last year, full-year net income in the company's history. And our operating earnings in Q1 were the highest they've ever been in Q1. And so, once upon a time, GameStop had over 8,000 stores, global business, queen of the ball. People are lined up in the malls for the new hardware and software. And we're making more money today than we ever have with a much smaller fleet, much more efficient, and software makes up like less than 12% of the business, and we're a leader in collectibles. And collectibles makes up a significant portion of our profits. So, the company's making real money today. And we have an efficient cost structure that is getting more efficient every single day.

Yeah, I mean people definitely it's nostalgic to a big part of our demographic. They look at it as a store of value comparable to gold or art. I don't have a crystal ball. But it fits in very well with our stores in terms of the actual size of the stores, the buy, sell, trade model, the fact that you can bring PSA cards into our stores, we scan it, we give you fair market value for the cards, cash, you can buy other items. It fits in really really well with the assets that I inherited at GameStop and to date it's been a growing business both across TCG. Pokemon is clearly a leader in that area as well as sports.

Well, it's a business that I understand really well. So when it comes to physical retail, I've been learning on the job. Whereas e-commerce is clear, it's within my circle of competence. So check in terms of business that I understand really well and have a lot of experience when it comes to the operational overlap or the category overlap with GameStop, with the collectibles business, with the refurbished tech business, with the ability, you know, at its core we provide liquidity to the secondhand market in the offline world and eBay is providing liquidity in the online world. Right? So there is a lot of overlap between the businesses and the ability to leverage our stores and nodes across the core marketplace business. And so when you think about, let's say as an example, authentication, you think about the trading card category right now. If you want to, and this is where eBay's been very successful, is on the authenticity guarantee because people buy product on eBay and this has been a problem since the beginning. You don't know whether it's going to be a fraudulent item. So the AG label on the product pages has been very helpful. But right now they're using a regional model where someone goes and buys a graded trading card and the seller ships it to a third party center and it takes a few days and it costs money and it gets authenticated and then it's shipped to the buyer. Now all of a sudden you have 1,600 nodes that are within driving distance, 15 minute driving distance of like 80% of the US population, and you can bring in same day for cheaper that trading card, get it authenticated, and it could ship immediately to the buyer. So that's just one example on the core marketplace business of the ability to leverage our stores for cheaper immediate authentication. And obviously that within trading cards could be expanded into other categories as well. When you look at basically leveraging these nodes within live commerce, which is an area where eBay has done terribly and they've lost significant share to competitors. We can leverage our stores as studios. We can leverage our stores for fulfillment and for logistics and make content creators' lives a lot easier. They can focus on content and they can basically take all their stuff and they can bring it to GameStop and we ultimately handle all of the fulfillment. So there's a lot of areas where these stores, and by the way, all of this basically costs like almost no capex. So there's the category overlap and then there's the growth in these areas like live commerce which are huge and the TAM of live commerce is like a trillion dollars but within the US it's nascent. It's very popular in Asia. And within the digital marketplace, and this is something that I've wanted to do for a long time, has deep experience in buy, sell, trade. And this is an asset class that I've wanted to unlock for a long time. So the standalone prospects of eBay, they're going to continue operating status quo. If you look at basically what they've done over the past 5 years, it's been status quo. Active users down, GMV down, income down, everything's down. They've bought back a lot of stock and the multiple has expanded. So, the stock price has done okay. It's outperformed the S&P, but the business, if you look at the key metrics, it's a strong business, but it's going in the wrong direction. So, I could take eBay and I can, you know, when I'm CEO, it's going to be a much bigger business.

None. None are. And ultimately it's a vote on, you know, ultimately it's going to be shareholders' decision, but it's expected in a process like this for that kind of reaction. But ultimately it will come down to shareholders' decision and who they believe is going to maximize shareholder value, be most aligned, and most capable of building a much larger business.

No.

I think it has to do with just a level of entrenchment and the fact that the highest paid employees who are serial delegators and aren't actually hands on keyboard doing any work, you know, they really have no utility. And it comes down to the people that I leverage are the people on the ground that are typically the lowest paid and they know the business really well and they're the hungriest and they want to work. And that's all I care about. I just care about people that want to work hard. I don't care for complicated Excel models or long PowerPoint presentations or the best public speakers. Unfortunately, in corporate America, those are the people who articulate themselves and are best at public speaking that make their way up and they end up making the most money and they end up being managers and above, but they don't have any real skills beyond that. They don't actually have any work ethic. So, that's, and by the way, this isn't necessarily just eBay. This is true for all of corporate America. That's who ultimately encompasses the management teams and the boards and they don't have utility to someone like me.

It's really the opposite. A good example is GameStop. And when I became the CEO, there were like 1,200 people in corporate and now there's 300 people. And we are getting so much more done and the tech stack is so much stronger. And it's not mutually exclusive. When you end up pulling costs out of the system, you end up, it's like losing weight. You end up being healthier. You want to run a marathon, you're not running a marathon if you're obese. And eBay is obese. So, it's like, the consultants will make it seem like it's going to affect the business, but it's the opposite. You get rid of all of the noise. Frankly, middle management and above, they're not actually doing any work. And ultimately, you empower the people on the bottom who are the hardest workers that are the least paid, and you end up actually developing a better product, a better UX. By the way, the marketplace business looks the same way as it did in 95, but that doesn't work well on live commerce. I've spoken to these sellers. They're waiting months just to get approved. They can't even print out shipping labels in the back end. So, you improve the UX. You get rid of all of the marketing that's not generating any ROI. You focus on the performance marketing that's actually making money. You spend more on what's making money and you get rid of everything else and it ends up being a stronger business that ultimately grows. So there's never good for a business to carry excess weight. And that's what eBay is doing. It's bloated. If you even compare them to their peers in their operating expenses, they're way above average. So my two billion that I'm going to pull out still gets us to above average, but it gets closer to baseline. Right? Two billion is the floor. I mean, I've pulled out at GameStop SG&A by 47%. And there weren't a lot of costs to pull out at GameStop. There's costs to pull out at eBay.

Yeah, I mean eBay should be the leader in live commerce. They have such passionate sellers. They have the inventory. They have the ability to create content, but the UX on both the front end and the back end is terrible. And it's just total complacency. So, there's no question in my mind that eBay should be the category leader in live commerce. And the market is massive. That's where all the growth is. So, yeah, I believe live commerce along with the digital marketplace are two massive areas for growth. And the cost cuts, you know, that is going to improve earnings in the short term and medium term. But the real earnings growth over a five and ten year timeline is going to come from the two growth areas. Right? Is there an AI angle to this acquisition or is AI not even needed to make it efficient? Yeah, I mean when it comes to agentic commerce, what's interesting about eBay is that their SKUs are very unique. And so first it's like cleaning up the catalog. So making sure that stuff is just formatted correctly. And then being able to, if this ultimately ends up being a thing, because it's not like we're selling commodities. It's a different business model than Amazon or Chewy. It's very unique. A Mickey Mantle baseball card, a special pen, whatever it might be. Unique clothes, but it's really one of one in most cases. So you want to be able to have very clean data sets and it's important to clean up the data sets and be able to plug in with everyone, basically every single engine. And that way you know you have the optionality, whoever ends up whichever engines end up being the ultimate leader, and also developing your own AI agents where you could basically go on to eBay and say, 'Hey, find me this item at this cost,' and you give very specific instructions to the AI agent and then it goes and it basically finds the items for you. But at a high level, when you look at the disruptiveness of AI across the entire business universe, I like eBay's prospects long term.

Um, I didn't have a backup plan at Chewy. There was no backup GameStop. So, there's no backup plan here.

Casino.

I am multiple. Can I name two? Yeah.

Uh, Elon Musk, Jeff Bezos.

Charlie Munger.

He's really the architect of Berkshire Hathaway and he's generated the best ideas.

To live. Yeah. America is the greatest country to ever exist. When you look at Dubai, China and how quickly these countries are developing, very impressive.

It is a unique asset. And it's fascinating.

Better question for them, but probably a lot.