GME Q3 Call Thoughts on the clash between Cohen and Sherman [Insert Rocket Emoji Here]

I posted this on stocktwits and in another comment thread, but given the feedback I've received, I thought I would create a new post to let this august community think Deep Thoughts about all of this as we approach the moment of truth. I'm not a social media guy so I usually don't get how all this shit works - just a 40-year-old lawyer who hates his job and sees a ticket out. Do your own DD and figure your own shit out. But the time is drawing nigh here for GME.

I know there has been some discussion of this here and there, but I find the psychological profiles of the folks in this situation to be very interesting--particularly because both Sherman (current CEO) and Cohen know that, fundamentals aside, this thing is sitting on a powder keg with the short %.

But first take Cohen.

Boy genius who builds Chewy with his smarts and an ethos dedicated to care for the customer. Beats Amazon in this niche area because he outworked and outsmarted everyone. Worked super close with his Dad, who sounds like an amazing businessman with an old school ethic about treating customers/employees well. After building this juggernaut he sold it for 3Bil. Dude did all of this before he was 33. Then says screw diversification and YOLOs into Apple and Wells Fargo. Apple goes berzerk and splits and he makes more millions. All the while watching and waiting for something new to come around.

And then almost exactly a year ago, Cohen’s Dad dies. There are many interviews when he talks about this: his Dad was only 69 and he is barely 35 and that’s early as shit to lose your father and best friend. Do not underestimate what that can do to someone and what lessons one might take from that or how that person feels now barely a year away from that happening. Cohen clearly reveres his Dad for his hard working ethic and how he taught him tenacity when you know you’re right. So Cohen finds GME and he sees that this brilliantly set-up company in an explosive growth sector has been run into the ground by prior management. He thinks he knows the way out: the “Chewy-fication” of GameStop – efficient, customer-focused ecommerce sector domination. So he takes a big stake and then talks to Sherman and explains what needs to happen to save this company.

And if the letter he sent last month reflects reality and is not posturing, Cohen is rebuffed a bit. Maybe Boomer Sherman doesn’t like the cut of his jib and patronizes him. Maybe Cohen didn’t like Sherman’s focus on short term profit at the expense of building long-term customer loyalty (the one of two trucks his Dad talks about, which Cohen cites frequently in his interviews). Who knows. But whatever it was, being rebuffed seems to piss Cohen off--judging by the tone of that letter. Oh, and he’s made it known that he has hired basically the top activist investor/takeover law firm and attorney in the country. So he puts Sherman in the hot seat: outline your plan to make GameStop what I know it can be as soon as possible. He knows Q3 earnings is in three weeks when he sends that letter. He’s saying: Don’t you let another conference call go by without outlining this plan. Or else.

And the “or else” is of course all speculative. But I do not think that the “or else” is Cohen selling his shares and sulking home pissed off that these mean Boomers didn’t do things the way he wanted them to do. No, I think this guy drinks Sherman’s fucking milkshake, takes this thing and shows the world how it’s done. He’s got the eye of the tiger, he’s still in that young and crushing it phase. He’s got his Dad, his Obi-Wan, guiding him on this. So he’s going to do this right. This is his moment and I think he sees that. He’s watching his baby Chewy with a MC of $30B. He knows he can do that or better with GME. And he is not going to take no for an answer.

Then take Sherman.

Dude has been Mr. Big Shot Hired-Gun CEO for a while now. Brought in to right this ship and Be The Man. And just as he starts to turn around this company—the moment he has been waiting for these difficult past 1.5 years (THE NEW CONSOLES ARE HERE!) this Chewy billionaire startup bro who is probably the same age as his children comes in and starts trying to tell him how to run a major public corporation. The nerve of this kid. Then, to make things worse, as Sherman prepares for the console release season and the Q3 earnings call, Cohen writes a scathing public letter attached to his 13D that calls out GameStop for being run by idiots and calls out Sherman specifically for being an out-of-touch boomer who doesn’t know the value of what he even has or what to do with it.

And this kid demands another strategic review and a public response on the obvious direction that Sherman needs to take the company. Sherman is not dumb. He knows who Cohen’s attorney is and he knows what Cohen is implying in that letter and the money Cohen has. Sherman now knows that the time he has to show shareholders he can turn this thing around has now shrunk. It’s go time. New consoles are out, Q4 numbers are likely to be through the roof and you have to address shareholders for the Q3 earnings call – one that everyone knows is likely to be a dud since it was pre-console cycle. So it’s a gimmie on numbers anyway. What self-respecting Master of the Universe hired gun Boomer CEO would just wilt under this pressure and fail to give every possible piece of good news to try to show shareholders his worth? The wolf is at the door and wants you in the unemployment line because you’re out of touch. Do you go quietly into the night?

Or do you give this punk-ass Millennial Start Up Bro a lesson that You Don’t Mess With the Shermanator? It would be an extraordinary act of self-sabotage if Sherman gave some cagy milquetoast guidance along with some middling Q3 numbers. It’s almost unthinkable. If GameStop has something good to talk about tomorrow, I’m guessing we hear all about it loud and clear. All Sherman’s incentives – financial, ego – point to him trying to knock it out of the park with Q4 guidance. If Sherman doesn’t take this golden opportunity to show his worth and start this squeeze, he deserves everything that’s coming to him. But even though I’d jump at the chance to see Cohen at the helm long term, I’m guessing he gives it his all since the possible outcomes aren’t hard see here. We will know soon if Sherman is a dead man walking or the temporary Hero and Savior of Gamestock, first of his name. And all the while, Mr. Moneybags Ecommerce Boy Genius watches and waits.

This is going to be fun to watch, to say the least.

EDIT: After that call and the shelf, Sherman clearly deserves none of the credit I gave him here. The company is solid and will be fine and everyone with shares and April calls should be AOK. Lots of positive stuff. But Sherman miscalculated horribly with the shelf. Cohen is going to rip Sherman's fucking heart out and make him watch, Temple of Doom Style. This is when things start to get interesting.

EDIT 2: In light of recent events, I would like to amend my last two paragraphs. I will leave the first three sentences and then conclude with the amount of credit I should have given this greedy shortsighted, dumbfuck Boomer.

"And this kid demands another strategic review and a public response on the obvious direction that Sherman needs to take the company. Sherman is not dumb. He knows who Cohen’s attorney is and he knows what Cohen is implying in that letter and the money Cohen has. So Sherman decides that instead of carefully considering Cohen's critiques and then bolstering his case to lead this company by buying back shares (as authorized) or giving better guidance on Q4 to possibly raise the share price and even trigger a short squeeze, delighting shareholders far and wide and even making them feel a sense of loyalty to him for it, Sherman goes for the all-too-perfect encapsulation of a Baby Boomer move: he protects himself with a totally needless shelf registration that is a transparent, weak-ass poison pill. But one that threatens to destroy shareholder value and let the shorts off the hook should an activist investor try to get a little too cute with their operations. Using us, the shareholders, as pawns in any possible proxy fight. Because Fuck You, I'm George Fucking Sherman. You'll get your Q4 numbers and I'll get my bonus and you can fuck right off.

We should all be outraged at how this was handled. And I can guarantee you that if Cohen was contemplating a takeover or a total removal of the Board, this couldn't have gone any better for him. The fear was likely that Sherman crushes it and we all shout the name Sherman! Sherman! from the rafters (not you Georgians probably) in exultation at our good fortune. A shelf registration and an after hours drop in price of 17%?? Chris Davis, Cohen's attorney, must be shitting himself at his good fortune. If Cohen moves, he is going to move quickly on this - possibly even tomorrow if the price really gets hammered. Wishful thinking? Yeah, possibly. But if I had the ability to call a vote on replacement of the Board and knew that could likely trigger a massive short squeeze for a stock I own nearly 10% of? I'd consider doing that. Very much so. And if I wanted to replace an inept Board and CEO, would I want him to do something that is transparently selfish and possibly destroys shareholder value? Yeah, I fucking would. And I would have a much easier time doing it right after almost every shareholder heard that call and thought: Fuck this Sherman guy. Which is the real thing ringing through the rafters tonight.