GameStop’s meme stock status has allowed it nine lives to try to reinvent itself as something other than a brick-and-mortar retailer for physical games. Its latest quixotic bet is a $56 billion leveraged buyout of eBay, which CEO Ryan Cohen could barely explain on live TV earlier this week. GameStop’s stock price has taken a hit as a result, and even some of its biggest backers are spooked. One of them, Michael Burry of The Big Short fame, has even pulled the ripcord and entirely liquidated his position.
“I sold my entire GME position,” Burry wrote in a Substack post on May 4 (via CNBC). He said the company’s pitch to acquire eBay using up to $20 billion in debt financing was “never compatible” with his bullish outlook for the ailing video game chain. “Instant Berkshire did not contemplate anywhere near 5x+ leverage,” Burry wrote. “Never confuse debt for creativity.”
As a result, GME is his first sale since he started his “Cassandra Unchained” newsletter to track his investment analysis.
This is notable not only because of Burry’s fame from shorting the mortgage-backed securities industry that spawned the 2008 financial crisis, but also because he has been one of GameStop’s earliest boosters. His original case for the company was that its stock price in early 2020 was undervalued relative to the PlayStation 5 and Xbox Series X/S console launches happening later that year. His thesis was pretty simple: while physical games were dying, a new console generation would be a boon to GameStop and investors were not pricing in that value appropriately.
What he did not foresee was the meme stock mania that would surround the company the following spring as a Reddit-backed movement to punish investors who were shorting GameStop rippled through Wall Street. While Burry had already bailed out of his investment by that point, he returned earlier this year citing his confidence in Chewy founder Ryan Cohen’s ability to shepherd the company into its next era.
“I am not counting on a short squeeze to realize long-term value,” Burry said at the time. He argued that Cohen would be a generational leader at the company and pointed to recent benefits from investments in collectibles and Bitcoin, and shuttering stores. Burry also pointed to GameStop’s ongoing sales of games and merchandise as a dependable revenue stream.
Not anymore, it seems. “When hundreds of billions are on the table, bet on craven greed,” he wrote on Monday. eBay said it’s currently reviewing the offer from GameStop, but the meme stock company is still $14 billion short at the moment of its promised acquisition price.
