Michael Burry says GameStop’s transformation under CEO Ryan Cohen resembles an old and disciplined playbook pioneered by Warren Buffett.
In a new Substack post, the Scion Asset Management founder says Cohen’s strategy is a capital-allocation exercise built around patience, balance-sheet repair and opportunistic acquisitions rather than retail enthusiasm.
Burry recalls Buffett’s decision to shut down his hedge fund in the 1960s and refocus Berkshire Hathaway as a holding company, using unconventional metrics to measure long-term performance.
“When Warren Buffett ended his hedge fund in 1969 and turned his focus on Berkshire Hathaway as a holding company, he began what was then a somewhat unique way of measuring the performance of his corporation.”
He says Cohen is applying a similar mindset to what remains a structurally weak core business, extracting value while positioning the company for a transformational acquisition.
“So, Ryan is making lemonade out of lemons. He has a crappy business, and he is milking it best he can while taking advantage of the meme stock phenomenon to raise cash and wait for an opportunity to make a big buy of a real growing cash cow business.”
Burry highlights the importance of GameStop’s net operating loss (NOLs) carryforwards, noting that preserving those tax benefits requires keeping the legacy business alive after any acquisition, a constraint Buffett navigated decades ago.
“If GameStop buys another business, he has to make sure the old business is still alive and kicking for at least two years after the acquisition in order to keep the benefits of the NOLs. These are the little rules that Buffett was very careful about in the 1970s.”
As Cohen positions for a key acquisition, Burry lays out a tactical roadmap for how he could use equity issuance and warrants to clean up the balance sheet if the stock rallies.
“If I am Ryan now, I want the stock to rally into the $30s. I want to raise cash through those warrants, and I want to get rid of the debt by issuing equity. The stock in the $30s would move that along. If it goes higher still, issue more stock, but not too much as to squander the NOLs.”
Under that scenario, Burry says GameStop could emerge with no debt, billions in cash and a tangible book value approaching levels that put a firm floor under the stock.
“After that, GameStop would have no debt, $1.9 billion from the warrants on top of the $8.8 billion I already have, 590 million shares outstanding, with a small operating business throwing off something and validating the whole thing for a while longer. Tangible book value could reach nearly $20/share.”
According to Burry, once GameStop is debt-free and sitting on billions in cash, the real move begins: acquiring a high-quality, cash-generating business, just as Buffett did when he shifted Berkshire from textiles into insurance and other operating companies.
“I own GME. I have been buying recently. I expect I am buying at what may soon be 1x tangible book value / 1x net asset value. And getting a young Ryan Cohen investing and deploying the company’s capital and cash flows. Perhaps for the next 50 years. With the downside protected by its tangible asset value, being long GameStop is almost as asymmetric as it gets these days in US common stocks.”
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