Michael Burry sells his entire GameStop position after its bid for eBay

GameStop shareholder Michael Burry has some thoughts about the retailer’s offer to buy eBay for $55.5 billion.

But the tweet and opening line of the latest article from the hedge fund manager of “The Big Short” fame turned Substacker may muddle his overall message:

*BURRY SAYS GAMESTOP BID FOR EBAY ‘MAKES PERFECT SENSE’

From our perch, Burry’s headlined comment that the bid “makes perfect sense” seems to be imbued with a hefty dose of sarcasm, and comes in a piece that’s full of skepticism about how the financials would work. The more important thing to highlight is that he’s decided to “certainly sell to an extent, perhaps all or some” of his GameStop position this week. In an update after the close on Monday, Burry said on Substack that he had indeed sold his entire position in GameStop:

Any which way I sliced it, the Instant Berkshire thesis was never compatible with >5x Debt/EBITDA, never ok with interest coverage under 4.0x...
As a result, GME is the first sale since I started this Substack.

Well that pretty much confirms our thoughts on how to interpret his “perfect sense” remark, given the context:

“Still, at the end of the day, this play for eBay makes perfect sense.

Wall Street does indeed mistake debt for creativity, and does so constantly.

I of all people should have known.

Charlie Munger once said, ‘When a manager with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact’.”

Burry appears to be saying this “makes perfect sense” because folks in financial circles will think it is smart, not because it actually is.

To be fair, Burry also wrote, “I do support the effort,” but also offers a lot of negative commentary about the bid.

For instance:

“Neither does this seem revolutionary or ground-breaking in nature. More dilution, or more debt — really, the capital markets strategy here could not be more pedestrian.”

“If Ryan really wanted to compete with Amazon, he would have acquired Wayfair (70% of its own last mile deliveries and warehouses all over) along with a cash flow machine and a bunch of float. I heard someone was peddling such a deal back in early February.”

“If GameStop wants to do it [editor’s note: dominate collectibles and used goods] with billions of interest expense and all manner of covenants restricting its movements, it will not be breaking new ground. It will be trotting in well-worn ruts on the road to capitalist Hell.

No new ground has been broken yet. To truly break new ground, Ryan has to execute and succeed in this transformation from this starting position, saddled with debt.”

Burry would have preferred if GameStop elected to buy a position in or bid for a company that he highlighted as a more appropriate target, including the aforementioned Wayfair.