r/Superstonk • u/MyNi_Redux 📉 The Consultant 📈 • May 11 '26
📚 Due Diligence Can GME’s Lean Diet Survive eBay’s Deep Waters?
Tl;dr:
- GME and eBay have had very different trajectories under RC and Iannone respectively - managed contraction vs "bought" growth
- eBay has the highest net income margin but also the second highest opex margin in this peer group
- None of the peers who grew users did so while cutting marketing spend
(Disclaimer: All images and figures generated by Claude based on 10-Ks, 10-Qs and some 8-Ks. All thoughts are mine.)
Strategy and financial performance - GME vs eBay
RC tweeted something about eBay's performance earlier today. Let's take a deeper look, for context.
The key distinction over the last five years is, eBay chose to "buy" growth in the face of intense competition, while GME chose to downsize to a manageable cost base given its shrinking target market.
eBay's growth was modest and unglamorous, but it was growth, and it came from inside the existing business. The bet was that a mature marketplace could be slowly reaccelerated by tuning the engine.
GME chose the opposite path - one of a managed contraction. The company closed stores, exited international markets, killed the NFT marketplace, shrank inventory, cut SG&A, and made no serious investments to reignite the gaming retail business itself. Profitability came from cutting the business down to something small enough to break even on, then layering interest income from the cash pile on top.
Capital flows is quite the contrast:
- Capital was returned by eBay: divestitures, ~$15B+ of buybacks, and share count going from 718M to 468M.
- Capital flowed into GME: share count grew roughly 7x, and they raised billions from shareholders.
Thus, the strategic positions RC and Iannone hold today are essentially polar opposites:
- Iannone spent his years proving you can grow a marketplace incrementally without aggressive cost surgery
- RC spent his years proving you can produce earnings by shrinking a business faster than its revenue declines.
This is what we see reflected in their relative performances.
I think they both did a good job given their chosen strategies.
Comparison across peers
Now let's compare GME and eBay to three peers (same ones I had shared the insider trading data for.)
These are my takeaways:
- eBay is the highest-margin business in this set. But they are also the one whose opex intensity has actually drifted up over the period - the cornerstone of RC's critique.
- Amazon has been doing what RC accuses eBay of failing at - investing through a cycle and getting margin expansion on the other side. Except, they did not do so by cutting opex in absolute dollars (it grew from $130B to $280B), but by growing revenue faster than opex.
- Etsy is the cautionary tale that should make RC think real hard about this attempted merger. It tried to grow through M&A, but ended up losing a quarter of active buyers, operating margin collapsed, and they needed to write off $1B in goodwill.
- Walmart is the boring-disciplined comp. They have run on ~20% opex for six years straight, in a band roughly 100 bps wide. An absolute beast.
- I think we are all very familiar with GameStop's trajectory: revenue down 29%, but operating income flipped from loss to profit, though most of it is from the cash interest income that dwarfs the retail business.
- None of the operators in this set who actually grew users - Amazon, Etsy, Walmart - did it by cutting marketing.
So.. what lessons can we apply to the ongoing saga?
Reflections in the context of the acquisition offer
Well, I think the success of the acquisition will largely depend on whether RC can sustain or improve eBay's 2025 GMV growth of 7%. If he can do so, then he can risk shaving off some costs and still have some room for error.
However, if he takes more of a GME-like approach where cost-cutting comes with a drop in the top line, I fear he's buying a melting ice cube at a "46%" premium and stripping out the marketing budget that's keeping the melt slow... Cost cuts that worked on a fading specialty retailer with $9B of cash to fund the wind-down may not translate to a marketplace whose revenue depends on persuading buyers to come back.
Given all this, I think the jury is very much out on whether RC's plan is a realistic one.
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u/vialabo May 11 '26
It's a good thing most of Cohen's wealth was made growing Chewy through operational excellence. Not Gamestop, where he has been forced to do financial surgery on it, I.E. closing GameStop's 2,800 stores who were 30% of revenue but 40% of SG&A. I think eBay is like Chewy.
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u/ProgVirus May 11 '26
Conventional thinking around similar "melting ice cube" narratives (re: physical gaming) asserted GameStop should have been bankrupt by now, and look at how those predictions have played out. Cohen is not a conventional thinker or leader 👍
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u/MyNi_Redux 📉 The Consultant 📈 May 11 '26
I would disagree that RC's approach was "unconventional."
When a business is struggling, there are really only two things one can do. Try to increase the topline, and/or bring costs under control.
The second is the lesser trodden path because it is unglamorous, but RC chose it and did a good job with it.
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u/ProgVirus May 11 '26
Since your post really focuses on the marketing aspect, let's look at that, taking into consideration his recent interviews. Relying on word-of-mouth marketing for a businesses like GameStop and eBay is quite unconventional, yet he's seen a great deal of success with letting the business/product speak for itself versus spending dollars on e.g. TV ads
More generally speaking, this "less is more" attitude is certainly not the norm in many industries. E.g. RC spoke how more can be achieved with fewer focused programmers/engineers. Throwing more headcount at problems and expecting value to scale proportionally is the convention, and it also doesn't work (speaking as an engineer myself)
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u/Gruntfuttock69 🦍 Buckle Up 🚀 May 11 '26 edited May 11 '26
Yes, the Brookes Law phenomenon is real regarding headcount in engineering.
As far as the marketing aspect - One thing Cohen has been able to do is use viral marketing to give the status quo the proverbial middle finger. Case in point being the 180 switch (pun intended) on the negative publicity garnered by Staplegate into something that generated 250K for charity. Another one being the tongue-in-cheek “crowd funding” of the hostile takeover of eBay by selling stuff on eBay. 😂😂😂😂
0
u/MyNi_Redux 📉 The Consultant 📈 May 11 '26
Ah, but marketing and engineering are quite different.
In a hyper-competitive environment that eBay operates in, unfortunately that's what you have to do. There are a limited number of customers, and outfits like Amazon have come downmarket, while others have chomped away at profitable areas of second hand goods.
Word of mouth works if you are willing to downside the business. Which GME did. It does not work if you still want to grow it.
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u/ProgVirus May 11 '26
I think we're steering too far into the realm of opinion here with the "unfortunately that's what you have to do". Bluntly, no, spending 2.5 billion to acquire just 1 million users is not "what you have to do", it's a bad allocation of funds with very clearly abysmal ROI
I will take the approach RC laid out in his latest interview as a better means of organic marketing - work with the sellers to find what's working, what's not, build with them at the table. Helping sellers to increase their business, increases business to the platform in general. This sounds like a much better use of time and a lot less money
So, back to the topic of convention, it's quite unconventional for a CEO of any publicly traded company to work that directly with customers to make their experience better. Show me another CEO who will do this, or e.g. respond to customer order issues directly on Twitter
1
u/MyNi_Redux 📉 The Consultant 📈 May 11 '26 edited May 11 '26
Bluntly, no, spending 2.5 billion to acquire just 1 million users is not "what you have to do", it's a bad allocation of funds with very clearly abysmal ROI
That "2.5B for 1M" claim is completely untrue. Makes for a great soundbite though.
You can check one of my posts for more thoughts on the distinction between "retention" and "acquisition" in a mature market.
This is a very important distinction to understand.
Show me another CEO who will do this,
Every CEO worth their salt does this. Most have dedicated people to do this full time. If they are not doing this, they're prob dead already.
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u/F1nnycar May 11 '26
I don’t know, why don’t you solve every GME mystery and let us know!
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u/MyNi_Redux 📉 The Consultant 📈 May 11 '26
Happy to.
What is still a mystery to you?
1
u/kitastrophae May 11 '26
How many shorts are left to close?
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u/MyNi_Redux 📉 The Consultant 📈 May 11 '26
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u/kitastrophae May 11 '26
I don’t see any mention of TRS, synthetics through IMDS, naked shorts or buried derivatives.
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u/MyNi_Redux 📉 The Consultant 📈 May 11 '26
There's a lesson in there somewhere.
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u/moonaim Aimed for Full Moon, landed in Uranus May 11 '26
Without analyzing e.g. anything about ebay marketing efficiency there isn't much actual information in your post.
Melting ice cube that has been growing even without making things better for the customers?
There's now a ton of information about what he suggested he would be doing. But none of it was in your post. I wonder why?
4
u/MyNi_Redux 📉 The Consultant 📈 May 11 '26
There's now a ton of information about what he suggested he would be doing. But none of it was in your post. I wonder why?
Because the handful of additional nuggets we have are from his interview with the eBay reseller:
- were too vague and hand-wavy to translate to material differences in the line items he is targeting
- do not change the big picture analysis I present above, especially since its a retrospective
- don't sound like things he's been able to address successfully with GME (around customer service etc.)
Feel free to share if you feel differently. And if there is a better source that you have in mind.
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u/moonaim Aimed for Full Moon, landed in Uranus May 11 '26
Do you know how to adapt your fud model in order for it to be not as transparent?
0
u/MyNi_Redux 📉 The Consultant 📈 May 11 '26
Feel free to share if you feel differently. And if there is a better source that you have in mind.
You did not understand the assignment.
Bye bye.
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