GameStop CEO Ryan Cohen's $56B Plan to Take Over eBay

24:34David Friedberg:Some folks who have managed multiple businesses or been CEO and applied their skills to different business lines. You know, I interviewed this guy, Charles Koch, a few weeks ago from Koch Industries. He's got a whole set of principles that he tries to apply to running a business. and those principles he's used to build and acquire and operate multiple different kinds of businesses. And he transforms the business by applying his principles to how he runs them. Do you have a similar sort of framework or model or machine that you use for running the business, assessing what's working and what's not working, that you then bring to bear on GameStop, on Chewy, and maybe next on eBay that you've used repeatedly that works well for you?

25:19David Friedberg:Or is everything kind of truly Zen mind, beginner's mind, first principles approach to thinking about the business? I'm sure I do, but I'm not good at articulating it. So I don't know if I'm the right person to be able to say what's going through my brain. Sometimes like whatever I'm feeling, I can't even necessarily describe it. If I describe it, it ends up being wrong. So someone else could probably do a better job at answering that question than me. What do you think someone else that's worked for you repeatedly would say it's like to work with you? You'd have to ask them. Okay. So hopefully not good things.

26:06Hopefully not good things.

26:07David Friedberg:Yeah, the pressure is on.

26:14David Friedberg:As the global economy becomes more connected, trust becomes the most valuable asset in the system. NASDAQ analyzes 1.8 billion transactions every week. And when a fraud pattern surfaces at one institution, AI strengthens detection across the entire network within hours. That is what it looks like when trust is built into the infrastructure itself. Built for the economy that is arriving. Find out more at nasdaq.com. The numbers speak for themselves in terms of what you've delivered at GameStop. I think collectibles is now 42 % of revenue,$350 million. In Q1, revenue was$835 million. You grew at 14 % year over year.

26:55David Friedberg:You cut SG &A from 228 to 202. You have$9.7 billion in cash, $333 million in free cash flow. And the board's just authorized to share repurchase. So it's pretty tremendous how you've operated this business. So help me understand a little bit as you're building GameStop, operating it and executing, what makes you lift your head up and say, hey, we should be doing acquisitions and looking at other things instead of just building everything organically in-house? If you look at the size of the business that I can build organically with GameStop. It's nice. It's okay. But I like to do big things. And, you know, Chewy is a good example.

27:44It could have been a$500 million business. It could have been a$100 million business. It could have been profitable if we would have spent a lot less money on marketing. But life is too short to do it small. So we have the, if you look at how complimentary and as we've gone into the collectible space, I've come to appreciate eBay differently. And if you look at how complementary these two businesses and from a lot of different dimensions, the secondary market side of the business, the collectible side of the business, the ability to provide liquidity to consumers, what we're doing in stores, eBay is doing online.

28:44authentication of secondhand items. There's so many aspects of the business that are similar, except that eBay is global and has significant scale. And frankly, it's a business that I understand a lot better than physical retail because I know a thing or two about e-commerce and it's an area where frankly I'm much more comfortable operating. And so when you look at how much the businesses together make sense and then you look at the fact that it's within my circle of competence, it's all – I can't stop thinking about it. So I look at Chewy as like Chewy in hindsight, we had a lot of competition in the pet space that were really well funded and they were decent operators and they didn't end up making it because, you know, it was a low margin business going head to head against Amazon.

29:56And it's similar to like the airline industry where people don't really care about the actual airline they're flying. They're just basically shopping by price. So yeah, that was selling pet food online. Not a great idea. And, you know, GameStop, I don't think was such a good idea either. This was this is actually a really good idea, whether it ends up working out or not. But this is actually a really good idea. We'll see what happens.

30:23David Friedberg:Was there a moment you remember when you said, we should make a play for eBay. Do you remember that moment when you were kind of looking at the business or thinking about the business when this idea kind of sprung forth? Yes, I know. What was it? I was on the toilet. Okay. And you were just thinking about it? Pretty much. I'm assuming you've been studying the business because you're in the collectibles business and learning a little bit about it and had this idea sitting there. Yeah, I mean, I've followed eBay for a very long time and I came to appreciate their experience, their moat in the collectible space.

31:17but it's not just collectibles too i mean it's the refurbished tech piece of the business where yeah game stop it's a big portion of our business and it's a big portion of of ebay's business too and the second hand business as well so there were other things that i thought about where i could personally add value and might make sense for game stop but this one made sense for me personally and it makes sense for GameStop. So. So if you have studied eBay, what do you think the team did right in the early days?

31:59David Friedberg:Was it simply the network effect and the business took off? And once they had the network, it was hard to break the moat. Was there anything about the formula or the consumer model or experience? Because you've said publicly, hey, eBay looks a lot like it did in the early days. Was there something about early management, early design principles, early engineering, anything that happened in the early stages of eBay that made it what it is today? I look at basically the marketplace model where they had first mover advantage. So their ability to have first mover advantage and really be the de facto marketplace online, including against Amazon was significant.

32:42So that was really helpful. I wouldn't say that if you look in general at the growth in e-commerce and you look at Amazon as an example, that basically took the marketplace model, but also took taking possession of first party inventory along with growing their marketplace. And like they ultimately scaled it and they essentially did what walmart was doing but they did it online and at scale i mean obviously you can't compare the two but they they their focus on building a marketplace gave them a moat and staying power but i wouldn't say that their execution was great in the early days it was great when it was founder operated.

33:31But since then, if you look at how much e-commerce has grown and how much market share they've given up to the likes of basically everyone, new competitors in the space that are very category focused, live shopping competitors picked off significant share from them, Shopify, social commerce, Amazon, eBay's been able to maintain a revenue base and generate earnings, but they haven't grown along with the rest of e-commerce. So, and if you look at how they've done most recently, I mean, they've basically, the business has stagnated up into the last few quarters and their operating expenses are up significantly.

34:17So, um it's not to say you know they've they they they are the de facto marketplace online especially in certain categories but that business should be significantly larger do you think they missed

34:33David Friedberg:the boat and if so why on stores you know amazon stores shopify obviously have become categories unto themselves all of those power sellers probably transitioned over to having stores at some point. What did eBay miss? Was it purely execution? And is there still an opportunity to win back that market? eBay could, I mean, and I'm not advocating, I mean, this is not something I would not go head to head against Amazon today. But I mean, eBay could have been Amazon. So when you look at what Amazon has built, I mean, everything from taking inventory and their principles of they provide a great customer experience.

35:15And so that's why we all love shopping on Amazon. And as a seller, Seller Central is a very powerful platform and sellers generally like it too. I don't know if they necessarily like the margins, but they can move a lot of inventory on Amazon. So eBay, by doing nothing, has basically carved out a niche in certain categories where Amazon isn't strong because they're strong in other categories. And you're buying a phone charger or new products. It's not necessarily the place where you want to search for like a unique baseball card or a hard to find pen or a used auto part. I don't know if it was necessarily through strategy or just because they ended up.

36:15They ended up basically like defaulting into those categories because their largest competitor was focused on other things.

36:24David Friedberg:Do you think Amazon's over earning right now? Because I think the point you make resonates with me. I've been involved in a number of businesses I've been on the board of and I see the margin that Amazon takes from sellers. And everyone's frustrated about it. It almost feels to me like everyone's hungry for an alternative. But the reason you stay on Amazon is the reach and the audience that you get with Amazon. So there's not a lot of other places that offer a competitive alternative to Amazon to those sellers, eBay's got a pretty big audience. I mean, do you think that Amazon's over earning in that sense?

36:58David Friedberg:And is there an opportunity for eBay to step up and compete in that sense? They charge a lot of money to their sellers. I agree with you. And sellers like it because they move a lot of inventory, but they don't like the margins. The problem would obviously be inventory, right? I mean, if eBay were to go in that direction, and you were running eBay, what do you think you do about inventory and logistics? I would not be interested in taking in firsthand inventory. I like the marketplace model. And the categories where eBay is doing well are categories where GameStop is doing especially well also.

37:39But going head-to-head against Amazon is...

37:49It's not the most attractive business.

37:52David Friedberg:eBay is notorious for having bought and then sold a number of big businesses. They bought PayPal and then later spun it out and divested. And they bought Skype for$2.6 billion in 2005 and then sold 70 % of it for$2 billion in 2009. And then they got lucky with Microsoft overpaying in 2011 and they made another$2 billion on it. So they netted a good profit on the Skype sale. So when you think about the audience that eBay has, the user base, there's a lot of ancillary businesses you could get into. When you look at PayPal, when you look at Skype, were those strategic errors or were they tactical errors, meaning they were good strategic moves, but they were mismanaged and not well integrated, not well run after the acquisition?

38:33David Friedberg:What do you think happened there? Well, if you look today at eBay, I mean, I like focus. So them focusing on core eBay makes sense. I mean, my strategy at Chewy wasn't creating all these other sub-brands for different geographies. It was always focusing on Chewy. So the focus is helpful. I'd say in eBay's case hasn't resulted in significant GMV growth, if at all, or earnings growth. But I do like being focused now. I mean, they've recently made acquisitions, which don't make sense. But generally speaking, like. I like focusing on a singular brand and especially with a business that's global, there's a lot of upside and, you know, eBay plays in a ton of categories already.

39:33So it's hard to do multiple things exceptionally well.

39:37David Friedberg:Yeah, the other example, obviously, StubHub, which they bought and then sold to the founder, Eric, at Viagogo for 4 billion years later, but also didn't really transition well. Does that mean that eBay can't really do well in other marketplaces? Or do you think it's about building the product organically in a better way to expand into other marketplace verticals? Yeah, building it organically through eBay and through Focus is where I believe makes the most sense. What's happened with the business in the post-Donahoe era? He left, I think, what did he leave a couple years ago? 2015. And it's been about 11 years.

40:22David Friedberg:I mean, if someone were to ask you, hey, give me your summary of what's happened to eBay in the last 11 years, How would you kind of talk through what's happened in the business? I mean, if you just look at how they've done in the past since COVID, every important metric is down. GMV is down. Active users is down by 30 million. Operating earnings is down. Revenue now is basically essentially break even. It's up a few points and operating expenses is up significantly. their operating expenses now are for a business that has no inventory they're operating their revenues are their operating expenses are over half of their revenues so that's a business that they're not growing everybody else in e-commerce is growing and they're making less money and they're spending a lot more and their sellers frankly aren't happy Like it's you talk to sellers and in order for them to do business on eBay, they have to use all kinds of third party tools outside of eBay because eBay is not even providing those tools.

41:32I mean, Amazon Seller Central is is is like soup to nuts. You could pretty much do everything in Seller Central, whereas with eBay, it's a pain. And and they alienate their sellers. I mean, they had concierge programs for their top sellers. And now it's like they take their sellers for granted and they're taking advantage of them. So the sellers in a marketplace model like eBay, the sellers are the customer. You make your sellers happy. You give them the tools. They bring more inventory online and you end up ultimately doing more sales and they're not working with their sellers to make them happy.

42:17So it's not that complicated. You talk to the sellers on the phone. You talk to the top sellers. You ask them, what are the pain points? And you get the engineering team on the phone with the sellers and you start basically banging them out. But, you know, I guess.

42:36Existing management team doesn't roll up there like they're not going to roll up their sleeves. They're going to go to outside consulting firms to tell them how to run their business. Yes.

42:44David Friedberg:Is that what's happened? What you state seems obvious. So do you think it's that management simply been complacent and collecting a paycheck and no one's acting like an owner? No one actually knows how to execute? Or do you think they fundamentally would disagree with that strategy, those points that you're making? Well, I mean, they're never going to admit it, but I would, I would bet everything that they're working with multiple outside consultants. And for a different, for a lot of different reasons. And they're not making their sellers happy. So their sellers are on the platform because they do a lot of business on the platform and they want to move product, but they don't feel like eBay wants to make them succeed and is working with them to do more business together.

43:34So that's what happens when you go from a business that founder, operator run to business with a professional management team is, you know, you lose the one-on-one and just the rolling up your sleeves, really getting into solving the root cause of problems. Do you believe in building long-range operating plans?

44:03David Friedberg:Meaning, would you articulate a strategic vision for eBay and then write out what you're going to do over the next three, four, five years so that the shareholders that are considering your acquisition offer can see both your vision and your plan for execution on that vision over the next several years? Or are you much more of a responsive manager where you're going to go in and diagnose and be much more of a tactician in iterating almost in an agile way of the business to success? How do you kind of think about presenting how you're going to be more successful in operating this business than existing management?

44:39So there are three areas. Number one is on immediately improving earnings through cutting costs and pulling$2 billion of costs out of the business. and on the operating base of close to five and a half billion of expenses and 2.4 billion spent on sales and marketing for essentially no user growth. There's a lot of money to pull out there. So you have the immediate increase in earnings through cost cutting. That's basically one. And then there's two growth vectors that I'm very much interested in. Number one is live commerce. And there's a large competitor that is completely crushing it. And eBay has the users.

45:40eBay has the brands. They have a platform, but the platform sucks for a lot of different reasons. and they don't have the content creators on the platform and nobody even really knows eBay Live exists. There's like an application process. I talk to sellers and they're telling me like they've applied to be a seller and they are waiting to get approved. It's like they're basically stopping themselves from being successful and getting content creators onto the platform. And then the entire backend of eBay Live also sucks. So live commerce, the TAM is like 400 billion. It's growing very quickly in the US.

46:21It's very popular in Asia. And eBay Live should be significantly larger. They should be the category leader in the space. And they have like at max a few hundred people, you know, in, you know, basically watching, watching their, watching, watching their sales. So that's a huge, huge growth opportunity for them to start doing really well in live commerce. And the benefit also we have with the stores beyond basically fixing the platform, the front end and the back end, using the stores. There are sixteen hundred. Essentially, nodes that can be used as studios for creators, they could be used as fulfillment and logistics and ultimately allowing sellers.

47:11sellers and the content creators do what they do best. They just create content and we can help them on photography. We can help them on fulfillment. We can help them on logistics. Um, and we can also do the authentication and that extends to the marketplace model as well. So, uh, I would focus a lot on, on growing the live commerce side of things beyond the cost cutting. And then the third thing is, and this is something that I have not spoken about before publicly, but eBay today is the leader in physical items, physical collectibles, as an example. And so I would extend that into digital collectibles.

48:02And essentially, if you look at all of these in-game items, AAA titles that people are accumulating, skins, weapons, all of these things, taking eBay and building a marketplace where you can provide liquidity for in-game digital items. Essentially, it's what NFTs could have. People thought they were, but ultimately they had no real utility. In-game items actually have real utility. And if you look at all of these collectibles, frankly, they're an ego play. You own art. Like, what is that? The end of the day, it's an ego play. If you look at trading cards, I mean, it's a piece of cardboard in a piece of plastic.

48:52And they're very, very, very popular, but there's no real utility to them other than being able to tell people you've got these really, a really unique trading card. But if you look at in-game digital items, there's no marketplace that is providing liquidity for them. And so I would use eBay to provide liquidity for in-game digital items. And I believe that addressable market is significantly larger than, could be much larger than eBay's marketplace on physical items. and no one's doing it. And this should already exist. And it's kind of like, it's crazy that it doesn't exist.

49:33David Friedberg:The eBay board has rejected your offer. Is it that they're looking at Ryan Cohen saying, hey, you're a guy that ran Chewy for a few years and sold it and you've been running GameStop. You've never really operated a business of the scale. We're not gonna hand over our shares for your shares and put you in charge of this overall enterprise. You don't have the experience, you don't have the skills, you don't have the competency. what's their rationale for rejecting your bid? And what's the feedback, the frank feedback you've heard either behind closed doors or through, you know, third parties about what's going on here?

50:06Well, they put out a rejection letter, which said that our offer was incredible. And there was a lot of uncertainty. And, you know, frankly, and by the way, I mean, this is expected. They don't want to hand over the reins, they're making a lot of money. And so I completely understand why they're taking the position that they're taking. But, you know, they spelled it out in the rejection letter. And number one was, you know, like the financing uncertainty, which frankly, if we can't get the financing, it means that eBay can't get the financing because we're getting the financing off of eBay's balance sheet.

50:52But there's been very, you know, there has not been very much engagement from the management and board level. Frankly, there's been really no engagement. I mean, they're playing games. They pointed us to their high-priced advisors. And then when we reach out to schedule a meeting, they don't schedule the meeting.

51:14David Friedberg:So when you first started having this idea sitting on the john, and you're like, I'm going to move forward with this thing. I'm assuming at some point you called bankers and talked about structure around this to figure out how do we put this bid together? Where do you go down the path where you said, let's do half cash, and then convince them to take our stock and basically roll their stock into our stock and let us run the business versus raise the capital to do an all cash offer for the company. Is it impossible for you guys to convince shareholders, investors, capital providers, large institutions, banks, lenders, and so on, to put together a syndicate of$56 billion of cash so you could make this an all cash offer, which would make it a lot harder for them to simply reject so easily?

52:09David Friedberg:Maybe you can walk us through the banker conversations and the process you've gone through and thinking about structure here. Ultimately, the decision is who do you want to run the business? And who do you think is more competent to run the business and who's going to maximize shareholder value? Because by giving existing shareholders GameStop shares, GameStop, the combined company, at least in the very near to medium future, the earnings are coming from eBay. So they're going to continue owning eBay. We're offering them 50 % cash, 50 % stock at a premium to where we bought it. And essentially, they get to continue owning eBay, except you've got someone that is highly incentivized to maximize shareholder value, knows a thing or two about e-commerce and running the business efficiently.

53:11But why not go all cash, Ryan?

53:14David Friedberg:Like, why not raise the capital? If you can raise half the cash to do the bid, why not raise all the cash, sell your shares, sell GameStop shares to investors to raise the cash that are aligned with you rather than the investors that own those eBay shares, and then go make them an all cash offer? I mean, that is not what we've presented today. And that's a lot of cash to come up with. So, you know, we don't have$60 billion of cash just lying around. Right. Well, tell me about the owners. Have you spoken to any of the shareholders at eBay? And do you have a view on how they're thinking about voting their shares?

53:59David Friedberg:My understanding is there was recently a rejection on the ability to call a special shareholder meeting. There was a vote that failed to reduce the threshold to 10 % of shares outstanding. It's currently at 20%. So that failure means you cannot call a special shareholder meeting without 20 % of the shares calling for it. Is that right? Yeah, it was close, but that's right. And so if you go through and start talking to the actual owners of eBay today, because it's a pretty broadly owned, institutionally owned stock. Have you started having those institutional conversations to see where folks are at and how they're feeling about management and how they're feeling about your strategy and your ability to deliver value for them over the next couple of years?

54:46Yeah, I mean, I don't want to. I don't want to get into individual shareholder discussions, but. The consensus has generally been aligned, which is they love the business and they see a lot of opportunities. So we'll see what ends up ultimately happening. And maybe the composition could shift because if you love the business, you might not want 50 % cash. You might want to stay invested. So, you know, that that's a possibility to ultimately the vote is on who's going to be a better fiduciary of capital and and who can grow this business. me or or someone that's basically selling stock hand over fist and by the way has not bought a single share of stock in the open market with his own money and has been selling tens of millions of dollars and you know the interesting thing in this and maybe you can help me understand this is that there's no question what we're doing, what I'm doing is it's big.

56:04You know, it's not every single day that something like this occurs. But why does everybody want us to fail? Why does everyone want GameStop to fail? And why is everyone like the media is an example. Why is it that you've got a management team with no skin in the game? They're not builders. They haven't built anything themselves before. They've basically just been employees at major companies that have been overpaid. I don't think they've ever broken out a sweat in their entire lives. Why does everyone want them to succeed? But when you have someone that, and by the way, this is going to be coming out.

56:45It hasn't been filed yet. Maybe by the time that, you know, when this airs, it will be. But I'm putting 500 million of my own money into this transaction. I haven't pulled a penny out of GameStop. I've invested a lot of money into GameStop I've been doing it for a long time GameStop's a much stronger business today Everyone hates GameStop And it seems like everyone in the media Basically wants us to fail And wants them to succeed And you've got a board That's making hundreds of thousands of dollars a year They don't buy stock with their own money They end up showing up to a handful of board meetings And they're making a fortune You've got a management team that is grossly overpaid with taking zero risk?

57:29And why is everyone basically want this entrenched management team and board to stay like protected and to continue running the business and doesn't want. There's nothing more American than basically risking your own capital. So why does everyone want us to fail?

57:48Commentators, what's your theory? I don't know.

57:54David Friedberg:Have you sat down with their CEO? I would love to. He won't take the meeting? I will fly to California tomorrow. No. I mean, you're the guy that's going to fire him. But he's going to get a payday, right? A big payday. A big payday. What's his parachute? Do you know what the parachute is for him? It's over 100 million bucks. So he'll get 100 million to walk away. Yeah. Have you met with any of the board members? No. they won't take the meeting. Have you reached out? Yeah. The great thing about markets, they don't care what the media says. On the short term, they might. It's a voting machine, but on the long term, it's a weighing machine.

58:37David Friedberg:And if the performance continues to be delivered at GameStop, people that might want to see the company fail are going to lose because you're going to get the weight, right? That's ultimately what's going to matter more than anything here. But I would assume that at this point, seeing the results at GameStop, folks have to start paying attention that this isn't just a meme stock. I do think that the media, in order to give you credibility, and this would be my take on this, they're going to have to acknowledge that all of their takes on GameStop just being a meme stock were wrong. And that there is actually a business here and that there is value being created here and that they missed that and they got the story completely wrong.

59:19David Friedberg:And so to recognize that and to recognize your competency as an executive and as a CEO and as someone that can run eBay better than the installed management makes them wrong in their assessment of how the cards were all laid out on the table. That would be my theory about all this. Because everyone got caught up in the frenzy of the meme stock craze saying, hey, this is all just fake. It's not real. And everyone agreed with that. Once everyone agrees with it, no one's allowed to rewrite history. No one can ever say that they were wrong about COVID. You can't have everyone say that they were wrong about GameStop because it ruins their credibility.

59:58David Friedberg:To maintain their credibility, they have to continue to make you seem less credible. That would be my take on it. Yeah. Yeah. So your next steps, you're going to go hostile? You're going to do a tender? I mean, how's this going to go? I'm going to do whatever we need to do, whatever I need to do in order to succeed. But you're committed. Clearly. Yeah. If I'm their bankers, I get hired to run a process and maximize shareholder value. Those bankers then try and negotiate with you. But the truth is, if there's no other bidders, they're just negotiating against themselves. Is that fair to say? Like, are there other bidders that could emerge here?

1:00:43David Friedberg:That could beat this price that you're offering that could beat this offer that you're putting on the table? Well, it's a lot of money. It's a big premium. And beauty is in the eye of the beholder. And like, it makes sense for me to pay this for the business because of what I could do with the business. not just short term in terms of increasing the earnings, but long term in terms of really taking significant market share in live commerce and building a digital marketplace for gaming. That's something an existing management team would never be able to build in their wildest dreams. And so it's worth it for me to do something like that.

1:01:30And then, you know, obviously, when it comes to their large competitors, there's antitrust issues in terms of them being able to do a deal of this size as well. But I don't know why they won't speak to me. They should, because I'm not going to stop. I'm not going to go away. But I'm sure they're going to be - Another option. Yeah.

1:01:53David Friedberg:Yeah. I mean, people could come along and buy the shares on the open market too and vote in favor of your offer. So, I mean, this is what often happens in these sorts of situations historically is the shareholder base can turn over. And if people like the premium on the stock today, and they don't want to own GameStop stock tomorrow, there's probably going to develop a good market for trading the shares. If the market starts to believe your story, I would imagine, right? And so that might happen here as well. So there's a lot of different escalation paths that we have in our toolkit. And we'll see them.

1:02:29David Friedberg:Are you working with bankers? Are you doing this alone? Yeah, we're working with bankers and high priced advisors. Okay. Ryan, this has been awesome to get to know you and hear about your history and your vision for where you want to take GameStop and eBay. Really, man, the best of luck to you in the process. And thanks for speaking with us. I appreciate it. Great speaking to you, Dave.

1:02:57David Friedberg:I'm going all in