[tombert]

I really thought it was going to be the other way around.

I am quite confident that if GameStop bought eBay, they would ruin it in the same way that K-Mart buying Sears ruined that company.

I could be wrong, I'm not a business person, but it seems kind of obvious that a company like GameStop, whose current existence appears to be due to a weird short squeeze anomaly, is not a sustainable business.

[danvayn]

The TD Bank securities commitment of 20B to finance the deal and GameStop having a market cap far below the acquisition cost suggests that buying eBay would’ve been very problematic and risky for investors. But comparing it to K mart buying sears isn’t really accurate to me.

Like yeah, GameStop clearly fits into the death of retail, and acquiring eBay does increase their market visibility or presence. Beyond that, what ebay/GS could’ve gained is way different and arguably more substantial than what acquiring Sears did for either company involved. Atleast here, one operates storefronts for second hand transactions and the other expressly doesn’t. There is definitely money in that.

[jerf]

If eBay thought having storefronts would be advantageous, they would have them. It doesn't make a lot of sense for eBay to merge with Gamestop only for the combined entity to decide that the most sensible first thing to do is close all the Gamestop locations.

The physical Gamestop locations are also horrifically overprovisioned to be an eBay storefront. Many companies have already experimented with things like "lockers" which seem to be successful enough to hang around, probably because the costs are low enough they don't need to do much to justify themselves and they don't need dedicated store fronts. If they want better assurance that the things being shipped are what the sellers claim they are a partnership with UPS or Fedex and their wide variety of existing storefronts that are already provisioned with everything you need to ship almost anything makes orders of magnitude more sense, and nobody has to "acquire" the other to make that work, without the square footage of a Gamestop location.

[semanticist]

GameStop's idea behind using their physical locations isn't for ease of shipping so much as ease of verification. People buying brand-name stuff off eBay (and Vinted, etc) pay for verification services to make sure that it's real. The idea - which is the only good/sane part of this entire takeover proposal - is to have retail locations that do the verification in person instead of shipping items to a central location for verification on sale.

But if eBay thought that would bring in more sales, I doubt it would be hard to find empty retail outlets in every city/town in the US and Europe since high street retail has been on a death spiral for years.

You can already use lockers for delivery/drop off with eBay through their courier company partners, at least in the UK.

[WJW]

Wouldn't verification for almost anything beyond the extremely basic need specialized people? I don't think it's reasonable to train every Gamestop employee to be able to verify everything from fancy Swiss watches to brand name clothing to playing cards. At least if you do it in a central location you can have actual experts do the verification.

[sanswork]

Yup, you save a few dollars per verification on shipping in exchange for spending tens of thousands on training each employee to verify items. Mind you these are retail employees so turnover is going to be high. Also since they need to be able to verify everything they won't have time to be in store since they'll constantly need to be studying new products. That or you just have them work off checklists for each product in which case the value of the verification isn't great since counterfeiters will just buy those check lists and manufacture to them.

The end result is much much higher cost per verification, and a less trusted quality of verification. But you save a few bucks on shipping.

[eszed]

The verification I'd be looking for immediately in-store would be "is this [product] or is this a brick?" - that once happened to me, with (for all I see sellers complain about excessively buyer-friendly policies) no recourse or compensation. If there's a more-complicated verification needed, the buyer could request that it be held onto until that's performed (elsewhere, if necessary). Verifiable chain of custody protects both buyers and sellers.

Not that a dodgy Gamestop merger is necessary for this, but I'd be (much) more likely to both buy and sell on eBay if it existed.

[jader201]

I'm not sure I follow/buy the premise of moving second-hand sales to a physical building as beneficial to eBay.

If I'm looking for X, I'd much rather go to an online store, where I have access to several listings of X at varying prices and condition, vs. make a trip to a physical store, see if they have X, and hope that the condition and price matches my expectations.

Maybe if I'm not looking for X, and just want to browse a bunch of stuff (e.g. yardsale/flea market style), then a physical store could make sense.

But, to me, having this middle-man physical presence was already a problem, and eBay solved this.

I just don't feel like eBay needs GameStop.

Now, whether GameStop needs eBay is a different story. But GameStop is in trouble for two reasons:

1. Video games -- and therefore video game sales -- are moving to digital.

2. Physical stores are becoming a thing of the past for retail transactions.

eBay doesn't need GameStop's troubles.

[tombert]

I could see it potentially be something like the Walmart pickup service? Last mile delivery is pretty expensive, so conceivably they could offer faster and/or cheaper shipping if you picked it up at a physical store.

I don't know. I don't think this acquisition would be a good idea.

[xp84]

^This. The crazy part is that in today’s PE-style system of things, the incentives…

- GameStop shareholders

- GameStop the company - e.g. employees

- eBay shareholders

- eBay the company - for example its employees

…aren’t necessarily aligned.

If GAME buys EBAY - it’s an exit for the EBAY shareholders, which is easy for them to evaluate as it’s presumably a $ premium over the share price today. If GAME then runs the company into the ground trying to free up the cash to pay off the acquisition debt, as most leveraged buyouts do (especially where retail is involved), that’s not a problem for those already-exited shareholders, though it is probably a problem for employees of either company.

[dagenix]

My understanding is that existing Ebay shareholders would get half cash and half stock. In order to actually profit, those shareholders would need to believe that the combined company's stock could be sold off without taking a significant loss.

[xp84]

Yeah. On the individual level you can plan to sell immediately, but it sure wouldn't be pretty if a lot of the shareholders decided to do the same!

[tombert]

If this deal does eventually go through, then it might be a good time for someone to start working on a competitor to take over the online auction space.

[rtkwe]

The biggest headache has always been fraud, eBay gets if from both sides and it's a pretty intractable problem to solve as the middle man.

[xp84]

That's what those huge ~10% final value fees they charge are for. And other revenue such as sponsored listings (pay to boost your item in search results).

As long as they keep the fraud volume below like 5% of sales, I feel like it's just a numbers game, where they just need to get as much sales onto their platform as possible to give them enough operating margin to cover their costs (including fraud) and provide profit.

Admittely, I have no idea how well they're doing at that, I haven't looked at their financial statements or anything.

[rtkwe]

TD didn't commit to $20B their letter only says they're "highly confident" they could raise that much. Very important distinction between the two.

[papercrane]

The letter also said it was conditional on the combined entity maintaining investment-grade credit rating, which seems unlikely if the combined entity was saddled with $20B in debt.

[colechristensen]

Gamestop turning into an eBay storefront makes a lot of sense to me and this seemed to be a very rational step to take when the short squeeze anomaly left them with billions in the bank and a business model that no longer makes very much sense with physical game sales being eaten by digital-only sales along with the potential decline of the console.

They already have the position of used buying and sales, extending that into in store receiving and listing of items on eBay makes sense. eBay being in decline as well.

>K-Mart buying Sears ruined that company

Both were quite dead by the time that happened.

[rtkwe]

I've yet to see a convincing vision of what an eBay physical store looks like that doesn't kind of boil down to a UPS store. The vast majority of their business comes from 3rd party listings and the only real stock they have and sell are in the eBay refurbished line. I'm really not convinced of what a successful eBay store would even be there for.

I've seen some say for authentication but staffing employees able to perform that authentication at even a fraction of existing GameStop stores would be extremely expensive (unless it's terrible authentication) so it again devolves to basically being a UPS store but for eBay shipping items out to be authenticated. Similar to what GameStop does with Pokemon cards and PSA grading except you can't really slab a Rolex or handbag so the authentication is only good so long as the good remains in the hands of the authenticator.

The only small service I think they could offer is a way for sellers to certify what's being shipped to avoid contests, but having that in every GameStop store is also very expensive for a cost they currently just shift onto sellers by siding with the customer. eBay could easily implement that if they wanted by partnering with UPS stores or a program where sellers video the packing or something.

[colechristensen]

>I've yet to see a convincing vision of what an eBay physical store looks like that doesn't kind of boil down to a UPS store.

Pawn shop for nerds/the middle class.

They could build AI to help authentication and just identifying sellers would help tremendously with fraud.

[rtkwe]

> Pawn shop for nerds/the middle class.

That's kind of but not really what GameStop was before digital games took over and isn't what eBay is. A majority of Pawn Shop business is in the name pawns and neither eBay nor GameStop have ever done.

> They could build AI to help authentication and just identifying sellers would help tremendously with fraud.

That's a huge step beyond reasonable, there have been billions spent on the current AIs and none of them are up to the task of telling a good fake from a real item. Maybe one day but that's ages away.

And fraud doesn't just happen on the seller side, a big headache for sellers is buyer fraud where they'll claim the item is wrong/broken and there's almost no recourse for sellers to prove that's incorrect. eBay could just as easily partner with UPS stores to implement seller and buyer authentication anyways there's not a huge benefit to GameStop in particular being the partner there. It's always been an option and they haven't taken it.

[DSMan195276]

> They already have the position of used buying and sales, extending that into in store receiving and listing of items on eBay makes sense.

Why do they need to buy eBay to do that?

[xp84]

I think you’re right about Kmart/Sears, though the interesting thing was that Lampert was correct that Sears had a great deal of real estate which had tremendous value. If someone skilled at retail had bought it, they could have used the money from selling some of that, to fix the business. Of course, Lampert was only skilled at finance and RE and very obviously just planned to gently wind down the business while selling off its assets, which is much less risky to do than fixing it - and may have yielded better financial results anyway.

That’s why the popular perception is that the Kmart transaction and Lampert killed it, even though their lot had really been cast 15+ years before, when they stopped innovating, and really stopped investing in their stores completely, without getting serious about e-commerce either. That poisoned their brand, which made it really hard to imagine turning it around.

[projektfu]

And really you could say that Discover killed it, because they lost focus on the core (or legacy?) business.

Still, department stores in the US are nothing like they were in their heyday.

[xp84]

Sears and Kmart both did so much diversification in the ~1980s! Discover, Allstate insurance, Dean Witter, Coldwell Banker for Sears (and Kmart had bought Borders, Builders Square, PACE, OfficeMax). If you trace the total return to a holder of Sears stock c. 1980, including the value they would have received in terms of stock in the spinoffs, the shareholders themselves may have actually ended up doing quite well in our timeline, even compared to one where Sears had reinvested all their profits into Sears, Roebuck & Co and maintained a more dominant retailing business as a result. It seems like no one really cared if the core business succeeded or failed, though.

[tombert]

I guess it comes to management.

I agree that if GameStop were basically rebranded as eBay brick and mortar stores, that might work. I guess I just feel like if it were GameStop itself that were managing it then it would be unlikely to actually work.

It's not like digital storefronts are new; I think GameStop should have been pivoting the moment that Steam started getting traction.

[m348e912]

You guys might not have seen the recent interviews (last week) with gamestop CEO Ryan Cohen. Gamestop has already pivoted, game and console sales are cyclical and hard to base a business upon. They have leaned hard into collectables as a way to expand their business and retail model.

I am unsure how a Gamestop/eBay storefront would do. Physical manifestations of "eBay stores" have existed in the past and none of them did very well long term.

[Scoundreller]

Dunno how gamestop’s logistics works but they could leverage the existing shops as dropoff points for sellers and offer a pickup point option to bypass the postal system. eBay sellers are at a disadvantage vs Amazon warehouse sellers when it comes to shipping costs.

At least my shipping broker in Canada uses small retail stores as dropoff points and then has a network of gig courier delivery companies they send stuff to for last mile delivery. Saves a lot on shipping costs.

I’ve noticed they don’t really integrate with gig couriers for last mile US shipments, just a few consolidators for mid-mile (eg: UPS Mail Innovations that uses USPS for last mile)

Might further delay delivery times but I use eBay to save some dollars in exchange for delayed gratification.

[harrall]

I don’t know about everybody else but I both sell and buy on eBay items that are more niche but not totally bespoke like on Etsy (e.g. photography equipment or specific hats).

Which means an eBay store would never make sense for my type of buyer or seller because I would just go to one of the many other existing entrenched retailers for regular things.

I know eBay pushes hard for regular retail but ultimately I see it as a marketplace for less fungible items and that’s what it excels at. Regular retail for regular items is easier because the user experience is always standard.

GameStop is trying to sit in the middle and trying to move product that is a little more fungible (previously used games and now more trading cards and collectibles) but I just don’t know how big of a market it is when you have to factor brick and mortar upkeep. I don’t want them to take down eBay in an experiment.

[colechristensen]

>I am unsure how a Gamestop/eBay storefront would do. Physical manifestations of "eBay stores" have existed in the past and none of them did very well long term.

A key here I think is the easy gradual transition here because Gamestop already has the used games business they could slowly integrate that into listing used games on eBay that were received at stores and then add related categories step by step with collectables and consumer electronics. There'd also be options of ebay items delivered to store which increases store traffic and doesn't involve giving strangers on the internet your home address, and there might be opportunities there to enter logistics and lower delivery costs for people.

[turtlesdown11]

> They have leaned hard into collectables as a way to expand their business and retail model

This is a market that is a fraction of the size of the game market, their pivot is into a smaller business?

[boringg]

Im pretty sure thats what the CEO pitched.

[coffeebeqn]

They’re only 22 years behind

[yalogin]

They still don’t have anywhere close to buying eBay.

[boringg]

Please see: Leveraged Buy Out.

For the benefit of all the people on this thread not understanding what the proposal is for the acqusition: "A leveraged buyout (LBO) is the acquisition of a company (typically by a private equity firm) using a significant amount of borrowed money (debt) to meet the purchase price, often 60% to 90% of the total cost. The target company’s assets are used as collateral for the loans, which are repaid using the company's future cash flows."

[applfanboysbgon]

Everybody understands the proposal. They also understand that an offer of $20 billion loan + $7.5b cash in hand + stock in Gamestop valued by the market at $11b = $37.5b, which is < $55b, a discrepancy Cohen has not been able to account for. Ebay also understands that leveraged buy-outs are a death sentence, and that saddling its operations with $20b of debt in exchange for gaining a dead business like Gamestop would eventually kill it.

[rtkwe]

Also when you count that 7.5B cash on hand as part of the deal to me that's to some extent double counting to include it and the current market value of all of GME's stock. At least part of the stock's value comes from the existence of the cash so it's not wholly separate from the value of the stock.

[rtkwe]

The $20B letter from TB is the leveraged part of the buy out and the math still doesn't add up even if you for some reason allow GME to dispose of all their cash in the deal without taking a hit to their stock price.

[stephen_g]

In a leveraged buyout you actually buy out the company so you take the risk of the debt and the sellers get the cash... Trying to do a 50% cash, 50% share deal, (where the shares hold the debt that generated the cash) is asking eBay's shareholders to be paid with cash borrowed from themselves!

[rtkwe]

This pattern of acquiring a company via debt financed on the value of the company is a leveraged buyout, is far from new and it's definitely quite corrosive to the finances of the new company. The pattern that plays out time and time again is the new debt from the acquisition severely hampers the new entity's ability to actually make the changes that might save them other than the chance to be raided by the buyer's management firm of choice.

[turtlesdown11]

TD bank is never going to give $20b for this transaction, they spelled it out quite clearly in their HC letter. It was a publicity stunt by GME.

[yalogin]

Ha yes of course, but th EU still have to show they can get the loan. They were unable to show that.

[pibaker]

K mart is at the very minimum a viable business. GameStop is a meme stock attached to the brand of a moribund business model. I just don't see a world where GameStop's core business ever gains relevance again when gamers have shown a strong revealed preference for digital games over physical ones.

This proposal never made any sense and it speaks volumes about the lunacy of the market that anyone takes it seriously at all.

[at-fates-hands]

>> whose current existence appears to be due to a weird short squeeze anomaly, is not a sustainable business.

I remember working in a CD Warehouse in the early aughts. Our store was next door to a Game Stop. The woman who worked at the Game Stop would come over and chat music with me when her store was slow. We used to joke about how both of our industries are seemingly dying a slow death. Console and game prices were going through the roof at the time. Compact Discs were being replaced by downloadable music. A few months before I quit, we finally started reselling DVD's to buoy the CD reselling part of the store.

As it turns out, the gaming industry outlasted the CD reselling business by quite a bit. lol

[aresant]

The context this comment misses is Gamestop's secret weapon is their CEO Ryan Cohen who has been sitting around the hoop trying to figure out how to leverage Gamestop's fundraising capabilities to do something big

Couple of highlights on Ryan

- Built and sold Chewy from a startup to the largest ecomm acq of all time - Became #1 individual shareholder of Apple early on - Bought a 10% share of Gamespot in 2020 becoming largest personal shareholder - Took over as CEO after being a proactive board member, works for no salary

https://en.wikipedia.org/wiki/Ryan_Cohen

[this_user]

You should also mention that Cohen never managed to turn Chewy into a profitable business before selling it off.

Similarly, his strategic initiatives at Gamestop have all been failure (e-commerce push, NFTs, digital games platform, crypto investments, ...). The only thing that has worked is aggressively cutting costs, mainly by shutting down stores, which was a plan that had already been proposed by BCG before Cohen came onboard.

Basically, he has done nothing except for taking credit for a plan that was already in motion and repeatedly diluting shareholders to raise funds that have been sitting in T-Bills ever since. There is no indication whatsoever that this guy is some kind of business genius who would be able to run Ebay better than the current management - quite the opposite actually.

[tombert]

I find it weird that people idolize businesspeople who basically just engage in ponzinomics.

They create businesses that don't make any money, often don't have any plans to ever make money, with the hope that they either get bought out by a BigCo or become public so that it becomes the index funds' problem.

It feels like this has been going on for about as long as Silicon Valley has been a thing, so maybe it actually is sustainable, but it sure feels like we are building our economy on a house of cards.

[_boffin_]

Wasn’t there something where his comp package mandated 50b in market cap?

Ahh. 100b https://investor.gamestop.com/news-releases/news-details/202...

[rtkwe]

He gets money every $10B of market cap anyways so even if it never grows this acquisition makes RC money.

[bayarearefugee]

> works for no salary

Working for no salary is almost never charitable and is almost always just part of a larger tax avoidance scheme.

[tombert]

Yeah I've never thought that that was the win that people seem to think it is. When you're that high up in the company, you have so much stock that you can pretty easily get loans against for however much you need, and write off the interest in the process.

[valleyer]

What U.S. tax code provision allows an individual to write off (non-primary-mortgage) loan interest?

[tombert]

Can't you write off capital losses? I've been able to deduct margin interest from my capital gains.

[valleyer]

Margin interest is tax-deductible, but only when you're using the loan to buy more securities. So, in context, a CEO who "works for no salary" and just takes out loans secured by their stock holdings to fund their lifestyle does not get to write off that interest.

Not to say the "no salary" thing isn't silly anyway, of course.

[rtkwe]

They have to trot it out because otherwise there's not much else to pimp about Cohen as CEO and this attempted deal seems much more oriented to juice the total market value of GME to more easily meet the criteria for his recent pay package rather than a great idea for either company on it's own.

[wordpad]

Doesn't matter as long as incentives are aligned. As a major stockholder and active advocate, he is already vested in success.

[tombert]

I'm not sure that the incentives actually are aligned. It seems like the incentives are to think short term and do sketchy shit to pump the stock.

[wordpad]

>It seems like the incentives are to think short term and do sketchy shit to pump the stock.

Its a meme stock, that's what stockholders actually want.

[tombert]

I'm arguing it's not "success". I don't believe that a meme stock is a truly long-term business.

[matthewdgreen]

I wish we would normalize people just running a business well and taking a damned salary.

[love2read]

You want to normalize low ambitions?

[Bjartr]

While successfully running a business in a sustainable way may not be the peak of ambition, calling it low ambition is toxic in the other direction.

[triceratops]

Doing a good job without it benefiting your personally.

[GuinansEyebrows]

unironically, yes. go get good at tetris if you need a high score for personal validation.

[jader201]

"Running a business well" is now "low ambitions"?

[turtlesdown11]

very impressive spokesman for the business and transaction

> it's on our website https://www.youtube.com/watch?v=Bmj2PaxX24E