CNBC SPECIAL: Making of the Meme King Part 1

0:00Ryan Cohen has emerged as a pretty interesting figure as well never talked I did not know Ryan Cohen was before GameStop. They're people who made fortunes thanks to him. What do you think that Ryan Cohen is doing? I have no idea. This is Making of the Meme King, a special CNBC podcast.

0:24Ryan Cohen is a man of mystery. I've never met him. I don't believe I've ever even heard him speak. 30-something entrepreneur who essentially took Amazon on successfully and built out Chewie to the great company that is today. Somebody without a college degree can become the chairman of a public company of the scale of GameStop. Came upon newfound fame by being the meme stock king, by being the Pied Piper of Wall Street. In terms of him being a meme lord, I don't know. If I was Ryan Cullen, I wouldn't want that to be my claim to fame. If every story needs a hero or a villain, Ryan very much filled that role.

1:04I'm Mary Hannon, a CNBC documentary senior producer. I'll provide some names and context, but this story is really told by the people who lived it, worked it, or covered it. Part one, a scrappy kid from Canada makes it big in America. My name is Melissa Lee. I am a host and a reporter at CNBC. I've been here for more than 20 years. People know Ryan Cohen now probably because of his role in the GameStop run-up. His investment of$76 million, now worth over$2 billion. But before all of this, he was an entrepreneur. Ryan Cohen, though, himself is a little bit of an edigma. My name is Lauren Hirsch, and I'm a reporter for The New York Times.

1:52He's very, very mysterious. You know, I've spoken to him, and I'll ask him where he is, and he won't tell me. He really just stays out of the press, and he does his thing. There's times where he's open and likes to make noise like you see on Twitter, and there's times in which he really withdraws. I think mysterious and elusive are spot on. So let people fill in the blanks and make their own assumptions. He grew up here in Montreal. Patti Sontag is a Canadian journalist. His past shows that he thought a bit differently right from the beginning of adulthood. I started my first business when I was 13 or 14 years old, building websites online.

2:36That's Ryan Cohen from a 2019 interview with Volition Capital. You'll be hearing more from it, since it's one of the few interviews he's granted. Whenever Ryan talks about his early years, the first thing that he brings up is his relationship with his father. A lot of Ryan's work ethic, he would say, came from his dad. And so when Ryan launched Chewy instead of going to college, his father was a huge sounding board for him, and it was really a point of bonding for them. I think I've known early on that I wanted to run my own show and build my own business. Chewy is everything to understanding Ryan Cohen.

3:13It's an e-commerce company that sells everything from 35-pound bags of dog food to collars and chew toys. Blake Day is the co-founder. They met in high school in a chat room, and that's how they connected. He and Blake Day were going to actually start an online jewelry company and decided to switch gears. I was shopping one day for Ty Lee, my teacup poodle, and I realized this was a category that I was much more passionate about. Within a few weeks, we were selling pet products online, and the rest is history. I knew it was called MrChewy.com, and every time that you told people where you were working, they were like, is it the granola bar?

3:55Like, is that what you... And I'm like, no, no, no, it's pet food. I'm Tom Gerkholder. I'm a longtime Chewy employee. I started at Chewy in 2013. I was just about to graduate from Penn State, and it happened that a family friend worked in a warehouse, and he said, hey, look, your son should contact this company. They're growing really quickly. They're still very small. And next thing you know, I'm in Harrisburg, Pennsylvania, in a warehouse. There's just these pallets of dog food, cat food, you know, you name it. There's pet supplies everywhere. I just had this gut feeling that it was going to be something huge.

4:27I met with Ryan and Blake in our first meeting down in South Florida. Why Florida? It's home to Chewy headquarters. Did I think I was sitting in the presence of a generational entrepreneur? Not yet, to be honest. I'm Larry Chang. I invest in emerging software and internet companies. I thought it was very impressive how they had scaled. Everyone said stay away from this category. Don't invest in it. It's not going to work. People thought Chewy was the next Pets.com, and where was Pets.com? It was bankrupt. Now that you can get whatever you want at Pets.com. It was a victim of the dot-com bubble.

5:02But also the economics of a business like that were very difficult. I mean, you think about a 35-pound bag of dog food. What kind of margins are you going to make shipping 35 pounds of dog food in the mail to somebody? What made Chewy possible is that consumers changed their purchasing habits. It's called the humanization of pets, which is we started to buy higher grade products, more meat-based products, more domestically sourced products, and the price of pet food has climbed over time. And so you can ship a 25-pound bag of dog food that costs$70 economically. He basically said to all the naysayers out there, you know, I know this has been tried before, but I think I can do it this time around.

5:39Ryan was having a lot of trouble getting investors. He was knocking on doors. He was sending emails. He was just getting rejection after rejection after rejection. The more I was told no, the more I was motivated to prove everyone who I felt was almost betting against me that they were wrong. That's Ryan again. While he declined to be interviewed for this project, his team did connect us with some of the people we spoke with, like Tom. It was so critical for us to get that investment. There were times where I was convinced that I was going to walk into the office and there was going to be a sign on the door that said, go home for the day.

6:17Ryan did a good job of not projecting that, and he negotiated quite effectively. We invested$15 million in Chewy's Series A round. We were the sole investor in that round. That's what ended up allowing us to bring fulfillment in-house. Allowed us to have control over the entire customer experience from start to finish. He told me he read every single review every night. Ryan kind of threw all the conventional protocols out and said, let's just start with the answer. The answer is we need to have customers who love us. My name is Samantha Redamar, and I was a customer service representative with Chewy.

6:56So for Chewy, customer service is 24-7, 365. My birthday, your birthday, Christmas, it did not matter. You are there. My name is Brian Hernandez. I was manager of learning and development at Chewy. We were all pet lovers and that really reflected in the customer service. You know, it was okay to cry over the phone with a customer who had lost their pet. That's not an easy thing to go through. It was okay to be fearful with a customer over the phone whose dog is not feeling well and they're sick. Ryan would send handwritten thank you cards around the holidays to customers. The logic was let's do everything we can to wow the customer and we'll have them for life.

7:35Typically when you call a customer service line, you're tossed around to six or seven different people. With Chewy, it was as simple as talking to one person, being like, hey, my food didn't get here, and I need food for my dog, or I came and the bag is broken, or the box was damaged. We would then process a refund or process a replacement, thinking like, I did a lot of refunds, and I'm like, how are we making money? We just keep giving people their money back. Ryan recognized that. He said, I'm okay with losing money as long as we're growing. Because if we're growing, we can just keep reinvesting that capital into additional growth, into additional marketing.

8:11We can keep going out of our way for the customers. One of the things we became famous for was sending portraits, paintings of pets if we got their picture. I painted mostly dogs and cats for Chewy, but I've also painted horses, fish, reptiles, birds, hamsters. What else? Axolotl, I think. That's the weirdest one I've ever painted. My name is Lauren Elizabeth, and I'm a professional pet portrait artist. Chewy reached out to me back in 2014. They had come across my website and sent me an email, and that's how we got started. I painted over 4 ,000 pet portraits for Chewy. If you're someone who cares about your pet, then those things made a difference.

8:57That's Lauren Hirsch of the New York Times. And that is what really got Chewy stratospheric. There's an aspect of Ryan, if you get to know him, which is utterly paranoid about competition. We didn't want to alert anyone, especially Amazon, that the company was doing so well. The PR strategy at Chewy was to not do PR. We wanted to stay below the radar until we had it north of a billion dollars in revenue. It was just an incredible business. We built a machine. We built a machine. Ultimately, when PetSmart reached out to us, Ryan essentially told them, you have to hit this price under these terms and you have 30 days to do it.

9:36Otherwise, I'm not spending time on this. And I remember at that time thinking, Ryan, you probably just killed the deal, but that's okay. It could be the biggest e-commerce deal ever. PetSmart agreeing to buy Chewy.com. So we sold the business for north of$3 billion, which was wildly successful. It was May 2017. Melissa Lee remembers. When Chewy got sold to PetSmart, that put Ryan Cohen on the map. He was not only a successful entrepreneur, but he was successful to the point of selling a company at the highest price ever paid for an e-commerce company at that time. It was like, oh my God, wow, like we really did make history with this.

10:21So Ryan will not confirm this publicly, but many people say he took home a billion in cash from the deal. The billion dollar payday ended up being a pretty important turning point, I think, in his life. Ryan worked every day, day and night. I'm literally saying he didn't take a break. And I think he needed a break. Ten months later, Ryan Cohen steps down as CEO of Chewy, leaving the company he founded and cashing in all his shares. But on June 14, 2019, he's back in the spotlight. The latest high-profile IPO making its trading debut today, online pet retailer Chewy coming public on the New York Stock Exchange.

11:04Tom Burkholder, the college grad who worked his way up from the warehouse to Chewy headquarters, was there. On IPO day, that was a really cool experience. Ryan and I are standing there on the exchange floor, just kind of soaking it all in. They're doing squawk on the street, and I was like, Ryan, you're the co-founder. You're the founder of this company. Like, you're the one they want to talk to. Joining us here at Post 9, Chewy's co-founder and former CEO who organized the sale to PetSmart in 2017, Ryan Cohen. So you're not a shareholder in Chewy. No. But I would imagine you have a lot of feelings about seeing this company that you built starting in 2011 go public today.

11:43It's a very, very emotional day. You sold for 3-3 and you got a$14 billion market cap today. Did you not sell for enough? Felt like a fair deal to us at the time. If you wind back and you say to Ryan, would you have sold the company knowing everything that you know? Would you have made the same decision today? I suspect that that would be a hard question for him to answer. What's Ryan Cohen focusing on? What's next? Well, retirement, I would say, is overrated. But he should be perfectly fine because he was a billionaire at that time. And he went on to do very interesting things with that billion dollars.

12:18A wild day for GameStop. New high score. The stock jumping as high as$159 a share. Once again, Melissa Lee, host of CNBC's Fast Money. January 2021 will live in history as the month GameStop went nuts. GameStop. GameStop. GameStop. GameStop. GameStop. GameStop. On the network, we were just nonstop GameStop updates because it was jaw-dropping. It's whipping up that momentum. And Ryan Cohen was able to do that in spades. He bought around 10 % of the company. He added more to his position just last month. You heard from cousins that you hadn't heard from in 50 years. Everybody was trying to get any information they could to validate and to substantiate why in the world is this stock going up and should I go ahead and get into it?

13:10My name is Shannon Phillips. I was at GameStop for 17 years. So Game to Stop, in its prime, was purely focused on hardcore gamers. We jokingly, internally referred to as we were in the crack house business. Because, I mean, we literally had, you know, a store in every strip center. We would have midnight launch parties for big games. We've got one minute left for the game to come out. Just one minute. I actually remember I saw this huge line and the cab driver goes, oh yeah, that's a GameStop. The Elder Scrolls just came out and my son's in that line right now. Just one minute left. My name's Michael Pachter.

13:52I'm a research analyst. GameStop is one of the retailers that I cover. By 2013, the hard drives were over a terabyte and game files were maybe 50 gigabytes. So you could download 20 games to your hard drive and consumers started downloading. And that was kind to the beginning of the end for GameStop. You know, the CEO changed several times. It just kind of spiraled from there. So when Ryan Cohen arrived, this was a wounded company. I mean, this was a company that was really down and out. People didn't have much hope for this one. I'm Kurt Wolf. Initially, I felt there was a sense of things weren't going well with the company when I first joined the board.

14:35Ryan himself, having built an e-commerce business, saw a great opportunity in the e-commerce space. Cohen, who owns nearly 10 % of GameStop, said the company's business model is outdated. He then, around November of 20, wrote a letter to the board, and that was disclosed, telling them that their strategy was flawed and that he had great ideas. My favorite part was this all-caps, italicized, underlined sentence that says something to the effect of GameStop's challenges stem from the intransigence of management. So basically he's saying you guys are all incompetent because you missed the boat on digital spending.

15:17I could tell from the letter that, you know, he didn't have access to all the internal data. So I wasn't as optimistic as some of the other co-workers. And again, one of those, you know, first thoughts was, Ryan, this is a different market. You cannot digitally download dog food. That company being pushed to conduct a strategic review by activist investor Ryan Cohen, founder of Chewy. An activist investor is somebody who buys a stake in the company and agitates for change at that company. In this particular case, change was for moving away from bricks and mortar, for embracing e-commerce, making the business more efficient by shutting down stores.

15:59Ryan Nebel is one of Ryan Cohen's lawyers. Our firm represented Ryan in his activist investment in GameStop. He's someone that's putting his own capital at stake and basically putting his money where his mouth is. To have someone make a significant investment in the company just necessarily suggest that someone believes that this company can be successful. My name's Mark Robinson. I'm the General Counsel and Corporate Secretary of GameStop. I think people welcomed and were excited about the idea of what Ryan could bring. January 2021 was when Ryan Cohen was appointed to the board. Not just him, him and two Chewy colleagues.

16:43And everything changed, really almost overnight. I'm Paul Evans. I served one year on the board at GameStop. There was one board member and his view was, listen, be careful what you wish for here. You may not want this person on the board, and I was shocked to hear that. My understanding, he was a little bit of a troublemaker in high school. Lauren Hirsch of The New York Times has been covering Ryan Cohen for years. A personality trait that seems to have carried into the boardroom. He said in the past that he likes to deal with people who will, you know, actually do things, not just collect paychecks.

17:21And so he really could not identify with any of these managers or board of directors. And I think people saw that he meant business and that if he could apply just some of that chewy magic to GameStop, that that could mean a big difference in the stock. GameStop up another 20 percent after a near 60 percent surge yesterday. Assistant Professor Su Guan of Santa Clara University School of Law, who researches financial market manipulation and information exchange in stock markets, began noticing something happening online. Folks on Reddit started posting about how they thought GameStop might be severely undervalued and all bought a ton of GameStop and they sent the price skyrocketing.

18:03What the heck is going on with GameStop? 390 % gains on a year-to-date basis. GameStop shares creating more than$3 billion in wealth. One of the craziest things that I've covered is the meme stock phenomenon. I don't know if there's a real definition for meme stock, but this is the way I view a meme stock. A stock that, by conventional fundamental analysis, doesn't have many growth prospects. And for some reason, the Reddit community gets a hold of this and believes somehow that they can turn that stock around just by momentum of them being in it. FOMO, you know, fear of missing out, is what drives meme stocks higher.

18:48Ryan Cohen is the poster child for the meme stock phenomenon. He is the meme stock king because of his role at GameStop. Investor Larry Chang is close with Ryan and recognizes the significance of it all. So Ryan's in uncharted territory as a deeply operational activist investor who also sort of is that first generation of having harnessed the power of social community paired together. I think he capitalized on that as an opportunity. You may remember Tom Burkholder. He eventually left Chewy to join Ryan at GameStop. I think he kind of viewed that as his debut, really, as kind of more of an activist investor versus just, you know, an ex-CEO.

19:33Ryan became chairman of GameStop in June of 2021. And not surprisingly, the reaction was extremely positive. In an in-person meeting, we tried to get the news out that Ryan would not be there. But GameStop's general counsel, Mark Robinson, was. We had individuals coming in bass boats and were drinking at 8 in the morning, waiting to get into our shareholder meeting. It was something I won't forget. Before 2021, we would typically have two to three shareholders show up at the meeting. I believe that our attendance was over 400 that day. Why did Ryan become the face of the meanstop phenomenon? You would have to ask the people on Reddit who made him that.

20:22These people tend to believe that Ryan Cohen is the savior of the little guy. My name is Brandon. I've been on Reddit, I believe, for six years. All of the Redditors we spoke with asked us not to use their last names for fear of retribution from online communities that follow Ryan. It felt like we were all trying to fight the big corporate, you know, greed. I did not know what I was doing when I started investing. Ryan Cohen, I had started to learn about him through the GameStop communities. And I started buying more GameStop because I liked what I had heard. He was a regular guy that became a billionaire.

21:02Well, why can't I do that too? He was supposed to be this great businessman who would make GameStop very profitable. That was Martin. Another Reddit user who jumped on GameStop's soaring stock, as did Arfon, who saw posts extolling the virtue of Ryan Cohen. He came across that he was on the side of retail investors. I think at the core of the GameStop movement, it was basically stick it to the man. When I was originally a part of these communities, that was a big part of the sentiment. It wasn't just a bunch of people trying to get rich. And that's how I felt at the time. They make a lot of memes about Ryan Cohen.

21:40My name is Evan, and I have been on Reddit for over 10 years. They love to have him as God, as the Messiah. My name is Josh Mitts. I'm a professor of law here at Columbia Law School. Ryan has been a galvanizing image as I see it. He's played this role of being a central actor in the meme stock world. People are creating these memes. They're looking for a story to tell. They're looking for something to direct investors' attention to. People who don't necessarily have a hero or an inspiration. That's Tom Burkholder. I think he's just kind of paradoxical in that he's a regular guy who's super successful, who's turned the tables, and people want to be a part of that.

22:29There's a sense in which people were attached to him in a way that defies sort of ordinary investing logic. Evan fires up his laptop to show us some of these memes. Here's a pretty typical post talking about how Ryan Cohen is going to lead you to the promised land. He's developed very much cult following on Reddit. In their eyes, he can do no wrong. Even GameStop analyst Michael Pachter has taken a peek. His followers have concluded that he's a genius and they're going to keep the stock propped up at a very high price. Buckle up, let's go. Ryan Cohen is a guy who likes to play it close to the vest.

23:05He might, you know, put out the mandatory filing. He might do a cryptic tweet, but that's about it. What he's up to is anybody's guess. Here again, Su Guan. His tweets are another example of the ways in which retail investors are looking at what I would say are non-traditional forms of information to make their investment decisions. Welcome to GMEDD's interview with the one, the only Ryan Cohen. Ryan Cohen did an interview with a group called GMEDD.com. So GameStop due diligence. And I think that he went there because it was a friendly audience. What's up with this one? They actually went through all these tweets and the guy asked him, what do these mean?

23:52February 22nd, 2022, a pair of shorts. What do you think? Has to be about short selling. He would post all sorts of vague nonsense, really. And all of these people thought that he was talking to them in code. I see the crazy conspiracy theories. That's Lauren Hirsch of the New York Times. So I'll kind of go through Reddit and I'll go through Twitter. I'm like, oh, they think this is going to happen. They think their deity is communicating with them, telling them not to give up the fight, and that one day they will still be billionaires because he is on their side. They concoct this broad, wide-ranging plan that he has when it's not clear that those plans always exist.

24:36He posted a GIF from the movie Ted, and it was the teddy bear taking a bong hit. The sock went straight up on that. Like, what was that? He showed a soft serve ice cream from McDonald's and the stock went straight up. So I'll give him credit that he's a meme master. Ryan and I are both on Twitter. Once again, Larry Chang. We're very different on Twitter. I've talked to Ryan about how people look at our tweets and I think we wish people wouldn't scrutinize them. We'd rather people just take the tweets at face value and not impute some sort of ulterior meaning in any of them. It doesn't seem like it really matters what he says.

25:17It seems like the people that are his diehard followers are going to think that, you know, he's always talking in code and always trying to communicate with them. I think social media feeds a conversation. Things go viral. And that's just as true of investing ideas as it is of any other theory. The difference with investing is that real money is at stake and maybe an individual's livelihood is at stake. Evan turns back to his laptop for specific examples. This shows how sad the whole thing can be. It shows someone a month ago talking about how much they're investing. And then eight days ago, they're asking if anyone has$5 so they can buy ramen noodles.

25:58This is someone who needs to be selling those shares just to survive, but they won't because they believe they'll become a billionaire. People said we will not sell our shares if the price won't look like a phone number. They basically went all in to the point of catastrophe for many. I'm just scrolling Reddit posts right now. A lot of these people who are posting saying they're willing to hold for the rest of their lives. I'm pretty sure at this point they want to give R.C. their paychecks directly. No matter what he does, these guys follow him and they turn anything he does into bullish sentiment.

26:33A source close to Ryan Cohen tells CNBC that Ryan avoids touting his own holdings or giving investment advice and is just being himself on Twitter. I originally would bet for Ryan Cohen because I believed he was a man of the people and was going to take these companies somewhere. My feelings about all this started to change when Ryan Cohen, in my opinion, rug-pulled Bed Bath & Beyond. That and more in part two of Making of the Meme King, a billionaire's next act.