- cross-posted to:
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- cross-posted to:
- [email protected]
On November 20, 2022, an interview with Ryan Cohen and Joe Fonicello of GMEdd.com is published.
The following is a transcript from the interview, lightly edited for better readability (e.g., removed any instances of “um”, “uh”, things like that).
JF: Welcome to GMEdd’s interview with the one the only Ryan Cohen. I’m Joe Fonicello your host for the next hour. Ryan serves as the chairman of GameStop and the manager of RC Ventures. Ryan, this is your first public appearance in over two years and the only time you’ve sat down with anyone for an extended interview like this. Why have you remained so quiet despite the attention?
RC: Well first of all thank you for hosting me, I’ve been incredibly impressed with a level of diligence that GMEdd has done for GameStop and for the community and I couldn’t think of a more appropriate channel to have this conversation with. Secondly in terms of why haven’t I done anything up until now, I haven’t had time, I’ve been focused on work so. Sorry for my dog in the background, but I haven’t had time to play I’ve been focused on work, so it’s taking up all of my time.
JF: Before everything with GameStop, you were the founder and CEO of Chewy at the age of 25. Can you talk about what building Chewy meant to you and what you learned from that experience?
RC: Can you hear the dog in the background?
JF: That’s perfect.
RC: It’s a real dog by the way it’s not just sound effects.
What did I learn from Chewy? Chewy was hard. We built Chewy in Florida, it was very hard to raise capital, we we’re a bunch of nobodies. It’s like three states basically account for like 75 percent of venture capital: New York, California, and Massachusetts, so raising capital was really difficult to Chewy, attracting talent was very difficult to Chewy,
especially being in in Florida the talent pool was pretty limited and we were selling 30 pound bags of pet food online and so that wasn’t very popular either against the backdrop of pets.com, so, first everyone said pets you know this you can’t make the unit Economics work selling 30 pound bags of pet food, and then once we had positive unit economics everyone said that Amazon was going to crush us, and neither of those things were true. But it was very very tough It’s a low margin business, part of the secret sauce was just how we structured it, we had negative working capital, we took the business from like 200 million to three and a half billion, we burned through less than 150 million of cash even though we accumulated significant losses, so, we turned our inventory over faster than our payment terms, but granted, going ahead to head against Amazon selling 30 pound bags of pet food in the mail - tough business.
GameStop on the other hand, in many ways – you know Chewy was like a new construction, we built the business from the ground up, knew the business inside and out, GameStop is different. We inherited a bunch of legacy everything, and under-investment across the entire business – people, the entire technology stack, just decades of neglect and so it’s hard to turn around a brick and mortar retailer that’s under the kind of pressure that GameStop was and continues to be under, but that was also part of the attraction going into GameStop was that a transformation the likes of GameStop was was really unprecedented and I was motivated by that and, you know, similarly selling 30 pound bags of of pet food in the mail was also very unpopular and we figured it out so, yeah, I like tough things. I don’t like to make my life easy for whatever reason.
JF: You’ve made yourself into a pretty prolific activist investor. Is RC Ventures evaluating other opportunities in this market and what do you look for?
RC: I’m always looking for opportunities. What do I look for? Yeah and of course I mean it’s a better it’s definitely a better environment and market to allocate capital today than it’s been you know in a very very long time at least in the past decade.
So I like consumer businesses, that’s my core competency and you know I like simple businesses.
JF: How big is RC Ventures?
RC: You’re looking at RC Ventures team.
JF: So why did you invest in GameStop?
RC: I invested in GameStop because I thought it was cheap I thought the intrinsic value of the business was worth more than the price that I paid, there was a tremendous amount of skepticism around GameStop and those are the things that I like.
I like looking at things where no one is looking at them. Those are usually some of the best opportunities.
And I’d say the opposite of that is IPOs where you know the animal spirits are out and everyone’s kind of standing in line trying to give them money – GameStop was on the opposite end of that.
No one was interested in investing in GameStop at the time that I made the investment it was hugely unpopular and those are the things that attract my attention. I’m contrarian by nature and so it was a pretty contrarian investment at the time.
JF: Yeah there are some contrarians online, what did you know about the enthusiasm from some retail investors over GameStop on digital communities like Wallstreetbets?
RC: I learned about, I mean I’d say I only really noticed that when I first filed my 13d – I lost my 13d virginity in August of 2020. So I was a late bloomer, and that’s when I noticed retail activity. And then when I filed subsequent amendments I noticed it, but it was something that snowballed over time and it was impossible to predict frankly. So obviously we know what happened, we know what happened afterwards in January, but you know I learned about it really when everyone else learned about it.
JF: Yeah last we spoke you refer to the events of January 2021 as one of the most fascinating things that has happened in the history of financial markets, and it was life-changing for us retail investors. What was it like for you?
RC: I was, when I decided to join the board personally, I made a long-term commitment to be at the company for an extended period of time, and so there was a lot of deliberations or I’d say board drama going on after I joined the board that really had nothing to do with the volatility in the markets and had everything to do just with the transformation and everything going on at the company, and so we changed the composition of the board, we got rid of the entire board we got rid of all the professional directors, we changed up the entire management team and so I was just I was focused on making all of the changes at the company and that consumed all of my time.
JF: Do you think what happened then could ever happen again?
RC: I don’t know, I mean that’s hard to predict what’s going to happen in financial markets. Anything can happen. Anything can happen.
JF: When you think about the attention GameStop’s received since then how has that impacted the company’s transformation?
RC: It’s great branding I mean there’s no amount of money that can get the kind of branding that that we got from Gamestop, so, you know, it made the company world renowned, it brought a lot of attention to the company and, net I mean I think it was hugely hugely beneficial for the brand.
JF: Yeah I remember when that happened we made a post on GMEdd saying this is the great opportunity to rebrand all the stores across the globe to GameStop because that was just free marketing you know for everyone to know the GameStop name and you did end up changing Canada over to GameStop. So, founding a company poses a different set of challenges than transforming a legacy business. How are Chewy and GameStop different or alike?
RC: They’re both contrarian. Selling, – you know there were all the comparisons with Chewy to pets.com, and then GameStop to Blockbuster, it was harder to raise capital at Chewy, it was you know every time we raised capital we basically had one option, when we were hiring was very difficult we were unknown quantity in Florida, I’d say at GameStop you know we’ve been able to raise capital, we’re fortunate that we were able to do two ATMs, it’s been easier to hire, being in the public markets and having that level of visibility.
But in terms of the actual business that – the business is more challenged at GameStop even if you look at the the cohorts and the customer retention, at Chewy selling consumables online we had really sticky customers and at GameStop it’s completely completely different. You don’t have sticky customers, so you know we had a payback period and a certain lifetime value whereas at GameStop you got to make back your money right away when you spend money on customer acquisition, so it’s definitely a different dynamic.
Having said that though, if you look at GameStop and the brand and you know the store base and the strategic assets of the company, the size of the the customer database, you know there’s a lot of strategic and just the revenue base frankly, I mean we needed to build that revenue base at Chewy, no one had ever heard of it, it was literally a customer by customer, whereas with GameStop it’s a known quantity already, and we’ve got a business and a foundation to build off of, but having said that, it’s a foundation that was under invested in for a very very long time and we’ve been working really hard to restore and rebuild that foundation.
34:11
JF: I’d like to talk some more about investing in the current economy which is much different than the start of the year. How has your investment outlook and management philosophy changed as the world exits the zero interest rate policy regime?
RC: Interest rates, you know, higher interest rates are a game changer, and so it changes everything, it’s changed how we allocate a capital at GameStop and that’s not just GameStop specific, it’s every single business, I mean it’s as simple as before, you had zero percent interest rates and so there really was no discount rate and the difference between long-term cash flows and short-term cash flows really there wasn’t much of a difference. Now you have a real discount rate, you’ve got the 10-year treasury north of four percent and so the value of short-term cash flows is much greater than long-term cash flows and as a result there’s, you know at GameStop we’ve got – we’re targeting higher returns and we’re focused much more on short-term profitability as a result. And so, you know, we’re cutting expenses aggressively and we’re going to continue to cut expenses aggressively and have much more of an emphasis on short-term profitability and so, it’s pretty simple. Interest rates are like gravity and you know you’ve got a higher hurdle rate and effectively a much higher discount rate and so it’s just a focus on profitability.
35:36
JF: To what extent do you think Chewy benefited from zero interest rates?
RC: It did. I mean we raised 350 million dollars and we would have taken, you know a similar approach, you know we targeted a certain lifetime value and payback period at Chewy and that was under a zero percent interest rate environment and so we would have been, you know, our marketing spend was efficient but we would have been even more selective in terms of how many customers we acquired and targeting a shorter payback period and, you know higher returns on invested capital ultimately, and that likely would have translated into lower revenue growth but you know ultimately you just, you know you allocate capital differently when interest rates are higher, you’re targeting higher returns.
36:26
JF: So how has becoming chairman of GameStop changed your views on capital markets?
RC: I mean it’s given me first-hand experience in terms of just the public markets per se, but you know as a – there’s not – there’s more red tape and bureaucracy to work through as a public company than a private company but at the end of the day whether I’m serving on a board or whether I’m an actual executive or whether I’m investing in a business, I mean it’s capital allocation. And, you know, you’re more involved as an executive as opposed to, you know there’s not much of a decision you can make other than buying and selling versus being a passive investor. But ultimately it’s, you know it’s all just capital allocation.
37:18
JF: You disclosed a 9.8 stake in Bed Bath and Beyond in March of this year and urge the board to adjust the company’s strategy. In August you sold that position. Why?
RC: I have a standstill with the company so, you know, I have to be careful what I say, so I’ll speak more in generalities. My views of the business clearly changed, and I was highly critical of the strategy and, you know, the strategy in the letter that I put out. In general it’s rare to see a company go from aggressively repurchasing shares to losing a lot of money. And so, you know, when I saw that, and I saw the results, you know, my views changed of the business and ultimately I sold.
38:24
JF: You’ve shared before that everything you know you learned by following in the footsteps of your father Ted Cohen. What would you say to him if he was still with us?
RC: A lot. I spoke to my father a few hours a day so I don’t even know where I would start. He would get a kick out of watching everything that’s going on. So what would I say to him? What would I say to him about what? We’d have a lot to talk about it would a very very long discussion and I really wouldn’t know where to start.
38:58
JF: You have a very strong fan base. What final remarks would you like to leave them with?
RC: I have a very similar sense of humor, and so I, get a kick out of seeing some of the content that gets posted online it – it’s good. It’s very very very very good. And some of the content that gets posted online, you know, it’s a lot of work goes into it and it’s hilarious, so it’s right up my alley in terms of that of sense of humor. The more provocative the better. I told you I got a really dark sense of humor, and so after you know if it’s a long stressful day there’s nothing better than seeing some of the content that gets posted online. The memes – you know me being a cross-dresser, in some of I look I don’t know I look pretty good in some of those. I like and retweet a few of those so I don’t even recognize myself I’m like wow.
JF: Yeah I’d say you really do show a lot of attention to the the face swaps people put your face on a beautiful woman.
RC: You’ve you’ve noticed –
JF: I’ve noticed.
RC: You’ve noticed. No no, I look good, I look good, I look good. And I’m trying to be humble, I’m trying to be humble like, some of them are good. So I need to give them a double take, but it’s right up my alley. It’s right up my alley.
40:27
JF: All right Ryan, it’s been an honor to speak with you. Thank you for your time. We hope to hear from you again soon. Cheers.
RC: Yes absolutely, thank you for your time, thank you for the work that you do for the company, it’s you know, it’s an honor to be here.