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Former Chewy CEO Ryan Cohen urges GameStop to become the Amazon of video games

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Game Stop store in New York City.

Michael Brochstein | LightRocket | Getty Images

The shift away from brick-and-mortar retailers in favor of online shopping has hurt GameStop over the past decade, pushing the company’s stock down nearly 40% in that time period.

But Ryan Cohen, the former CEO of Chewy, thinks the maligned video-fame retailer can turn itself around by shifting its focus away from physical stores in favor of a building robust e-commerce platform. Cohen thinks GameStop can use its brand and large customer base to make that transition. He has taken a large stake in the company to try and push it in that direction.

Company: GameStop Corp (GME)

Business: GameStop is a retailer that sells video game hardware, physical and digital video game software, video game accessories, as well as mobile and consumer electronics products and other merchandise primarily through retail operations, with all stores engaged in the sale of new and pre-owned video game systems, software and accessories.

Stock Market Value: $828 million ($12.71 per share)

Activist: Ryan Cohen

Percentage Ownership: 9.98%

Average Cost: $5.98

Activist Commentary: Cohen is not an activist but an extremely successful entrepreneur. Cohen is the co-founder and former CEO of e-commerce company Chewy, which he built up and sold to PetSmart in 2017 for $3.35 billion. Cohen remained CEO following the acquisition until March 2018, and in June 2019, Chewy went public at a valuation of $8.7 billion. This is Cohen’s first 13D filing, but what he lacks in activist experience he makes up for in strategic and operational qualifications in building and running a company in the digital era, giving him a ton of credibility here, even more so than the average activist with respect to certain areas.

What’s Happening:

On Nov. 16, 2020, Cohen sent a letter to the company’s board, urging them to immediately conduct a strategic review and to provide stockholders with a credible and publicly available roadmap for cost containment, prioritizing profitable retail locations and geographic markets and building the e-commerce ecosystem.

Behind the Scenes:

Cohen resorted to this public letter because his private attempts were not productive. GameStop sells video games and consoles and has been bearishly compared to Blockbuster. Cohen does not make that direct analogy, but he certainly paints the picture of a company that is on that same path if it does not change.

Sales have declined from $9.5 billion in fiscal year 2011 (before the last console cycle) to $6.4 billion in fiscal year 2019; EBITDA has dropped from $839 million in 2011 to only $111 million in 2019; net income has fallen from $339 million in 2011 to a loss of $470 million in 2019; and in the two most recent quarters alone, the company lost another $277 million. All of this happened while the size of the global gaming market has grown by more than 2.5x since the last console cycle. Cohen sees a company that is stuck in a brick-and-mortar mentality and is unwilling to embrace the digital mindset necessary to grow with gamers.

However, Cohen also sees a company with valuable assets, including a strong brand and large customer base and a path to success and shareholder value. He believes the company can be the ultimate destination for gamers, but that destination must start with a strong e-commerce platform that provides competitive pricing, broad gaming selection, fast shipping and a truly high touch experience that excites and delights customers, including content and community. It needs to become the Amazon of gaming, with the added expertise and specialized customer service as a key differentiator.

To do this, Cohen urges the company to cut excessive real estate costs, streamline or sell non-core operations in Europe and Australia and hire the right talent. While Cohen does not specifically target CEO George Sherman, he does note that Sherman has substantial experience working for large brick-and-mortar retailers such as Advance Auto Parts, Best Buy and Target and is committed to a twentieth century focus on physical stores and walk-in sales despite the transition to an always-on digital world.

The company is at an inflection point to make this change. Cohen notes that the company will be able to temporarily mask some of its issues with the new console cycle that will appear to validate its adherence to an outdated business model that is overdependent on brick-and-mortar sales. However, it is also this new console cycle and additional sales that can provide the cash flow to finance this strategy change into the future as the global gaming market is expected to reach $174.9 billion this year and $217.9 billion by 2023. 

Cohen alludes to the fact that one board seat would not be acceptable to him as he wants the company to actually focus on a shift in mindset. This would require at least two — and probably three or more — new directors to the ten-person board, depending on who is replaced. While it looks like Cohen might have an ally on the board in James Symancyk, the CEO of PetSmart while Cohen was running Chewy, Symancyk also has a brick-and-mortar background and might not see it the same way Cohen does.

If this does end up going to a proxy fight, Cohen seems like the type of shareholder who will take it the distance if necessary. In that case, he would have two potential headwinds. First, the company recently added four new directors through settlements and nominations by shareholders. That could be enough to placate certain institutional shareholders and ISS if they do not see as dire of a situation as Cohen does in this ultra-fast-moving industry. Second, a large part of the shareholder base is comprised of index funds such as BlackRock (12.12%), Vanguard (8.12%) and State Street (4.0%), who are reluctant to back an activist without the cover of an ISS or Glass Lewis recommendation.  However, what is interesting here is there is an unusually high short interest, with approximately 90% of the shares in lending programs, so we don’t really know who has loaned their shares, who can vote them and who can recall them before the meeting.

It will be interesting to see if the board will be able to stomach the change necessary to propel GameStop into the 21st century. In the words of former U.S. Army General Eric Shinseki: “If you don’t like change, you’re going to like irrelevance even less.”

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments


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New York Gov. Cuomo reopens Covid field hospital in Staten Island as hospitalizations accelerate

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New York Governor Andrew Cuomo wears a protective face mask as he arrives to speak during a daily briefing following the outbreak of the coronavirus disease (COVID-19) in Manhattan in New York City, New York, U.S., July 13, 2020.

Mike Segar | Reuters

New York will reopen a temporary field hospital on Staten Island to help treat an influx of coronavirus patients as the New York City borough faces a worsening outbreak, Gov. Andrew Cuomo said on Monday.

“Staten Island is a problem,” Cuomo said during a press briefing. There were 91 people hospitalized with Covid-19 on Staten Island as of Sunday, a near threefold increase from three weeks ago, Cuomo said.

The field hospital was one of many New York opened in the spring as it fought back a wave of coronavirus infections that overwhelmed its hospital system and killed roughly 800 people every day. However, those emergency facilities largely went unused, Cuomo said.

“This was a planned emergency facility in the spring. We didn’t use it, now we need it,” he said.

Across the state, Covid-19 hospitalizations have jumped 122% over the last three weeks, he said, from 1,227 to 2,724 on Sunday. At that rate, the state projects thousands of more people will be hospitalized in the upcoming weeks. That’s before taking into account the upcoming holidays, which could accelerate the problem, the Democratic governor warned.

“These are dangerous times that we’re in,” Cuomo said. “Before you get to Thanksgiving, we’re already in a bad period.”

This is a developing story. Please check back later for updates.


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Rise in Covid spread puts hospital workers at risk: Allina Health CEO

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The sharp uptick in coronavirus cases across the Midwest is increasing health-care workers’ risk of getting infected, jeopardizing staffing levels needed to care for other Covid-19 patients, according to the CEO of a Minnesota hospital system.

Dr. Penny Wheeler, who leads Minneapolis-based Allina Health, told CNBC on Monday that the not-for-profit health network has more personal protective equipment, ventilators and available beds to care for Covid-19 patients than it had during the initial outbreak in the spring. Nurses and doctors, however, are harder to come by, she said.

“You cannot manufacture a talented and compassionate caregiver,” Wheeler said in a “Squawk on the Street” interview. “And that’s where we’re having trouble with now, especially with so many of them being affected or their family members being affected by community spread in our organization and in the community.”

Wheeler said for that reason, it is imperative people take seriously the public health strategies that can reduce the chain of coronavirus transmission in the community. Doing so reduces the likelihood that hospital workers become sick, she said.

“The need for masking, physical distancing and washing of hands, all those things — I know people are fatigued but so are the health-care workers, and you can keep our health-care workers healthier and able to care for you if you do those things,” Wheeler said. “These are incredibly skilled people, and you can’t replace them.”

Minnesota is one of 25 states seeing record-high hospitalizations for Covid-19 patients, based on a seven-day average, according to a CNBC analysis of data from the COVID Tracking Project, which is run by journalists at The Atlantic. Minnesota also is one of eight states where daily deaths from Covid-19 are at all-time highs, with 48 people on average dying per day in the last week, according to CNBC’s analysis of Johns Hopkins University data.

At least 3,297 people in Minnesota have died from Covid-19 during the pandemic, Hopkins data shows.

Wheeler’s concerns about staffing are shared elsewhere across the country, especially in some of Minnesota’s nearby states, which have been hit hard by the fall coronavirus spike. “Our geography in the Midwest, upper Midwest, has been seeing unprecedented numbers of infections and case growth,” she said.

Earlier this month, the head of the University of Wisconsin’s health network told CNBC its seven-hospital system was “short of staff all times, either because they have Covid or they have some other illness and we need to rule out Covid before we bring them back to work.”

“There is no surplus staff to deploy to other hospitals to help each other out, so we’re trying to equal the load. We’re all trying to keep patients local,” UW Health CEO Dr. Alan Kaplan said then.

The U.S. has continued to experience a worsening of its coronavirus outbreak in recent weeks, with daily average new cases setting a series of record highs. While Wheeler said a series of positive developments around Covid-19 vaccines are a “wonderful ray of hope,” the widespread availability is still some time away.

“We just have to hold on … so let’s take what is in our control — mask up, physical distance, wash your hands,” Wheeler said. “We can take that, and then we can bridge that to a time where there’s greater hope in the vaccines in the offing, then we’ll be doing a great service and we’ll have more lives here than lost.”

CNBC’s Nate Rattner contributed to this report.


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Oxford-AstraZeneca Covid vaccine has some advantages over its peers

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AstraZeneca’s building in Luton, Britain.

Tim Ireland | Xinhua News Agency | Getty Images

LONDON — The coronavirus vaccine being developed by AstraZeneca and the University of Oxford was found to be “highly” protective, potentially paving the way for a vaccine that is more affordable and easier to distribute than some of its peers.

An interim analysis of clinical trials showed the Oxford-AstraZeneca vaccine had an average efficacy of 70% in protecting against the virus.

Researchers said this figure could be as high as 90% by tweaking the dose, but the overall results show the vaccine’s efficacy is slightly lower than other leading candidates.

Both PfizerBioNTech and Moderna reported preliminary results last week showing that their respective Covid vaccines were around 95% effective.

However, White House coronavirus advisor Dr. Anthony Fauci has previously said a vaccine that is 50% or 60% effective against the virus would be acceptable.

It is hoped a Covid vaccine could help to bring an end to the coronavirus pandemic that has claimed more than 1.3 million lives worldwide.

Huge challenges remain before a vaccine can be rolled out. The global battle to secure prospective supplies has raised concerns about equitable access, while questions remain over the logistics of mass production, distribution, and cost.

Logistics

Equity analysts at Jefferies said it was “challenging” to compare the efficacy of AstraZeneca’s vaccine with those of Pfizer-BioNTech and Moderna, citing key differences in how the trials have been conducted.

The analysts highlighted weekly swabbing to detect Covid-19 among participants involved in AstraZeneca’s trials — not just confirmation of suspected cases by symptoms as in U.S. trials. They also stressed that a meningococcal vaccine was used for comparison, not placebo.

The Oxford-AstraZeneca vaccine was assessed over two dosing regimens. One showed an effectiveness of 90% when trial participants received a half dose, followed by a full dose at least one month later.

The other showed 62% efficacy when given as two full doses at least one month apart.

No hospitalizations or severe cases of the disease were reported in participants receiving the vaccine.

A motorcyclist wears a protective mask while sitting at the side of the road at the Sabarmati Riverfront in Ahmedabad, India, on Thursday, Oct. 22, 2020. Prime Minister Narendra Modi said his government will ensure that all 1.3 billion people nationwide will have access to a Covid-19 vaccine as soon it is ready.

Sumit Dayal | Bloomberg | Getty Images

The Jefferies analysts said that when it comes to storage, affordability and distribution, AstraZeneca’s vaccine appears to have an advantage.

The British pharmaceutical giant has said its vaccine can be stored, transported and handled at normal refrigerated conditions (36-46 degrees Fahrenheit) for at least six months and administered within existing health-care settings. It has also pledged to distribute the vaccine at no profit “for the duration of the pandemic.”

The Financial Times has previously reported the Oxford-AstraZeneca vaccine, which requires two doses, is priced at approximately $3 to $4 — significantly lower than the prices reported for Pfizer-BioNTech and Moderna.

In comparison, Moderna has said its vaccine candidate remains stable at the temperature of a standard home refrigerator for up to 30 days. It can also be stored for up to six months at minus 4 degrees Fahrenheit.

In August, the U.S. biotechnology firm said it was charging $32 to $37 per dose for its vaccine for some customers.

The Pfizer-BioNTech vaccine requires a storage temperature of minus 94 degrees Fahrenheit and requires special storage equipment and transportation. This could make it difficult for some countries to distribute.

Pfizer is reportedly charging $20 per dose for its vaccine.

‘Big beneficiaries’

Strategists at Deutsche Bank described the news from AstraZeneca on Monday as a “big deal,” saying a string of encouraging vaccine developments in recent weeks constituted “an unprecedented victory for science.”

They suggested that emerging markets, most notably Brazil, Mexico, India and Indonesia, were likely to be the “big beneficiaries” of the AstaZeneca vaccine. That’s because “the cheaper cost of production and distribution of AstraZeneca is especially relevant for lower and middle-income countries,” they said.

AstraZeneca has said it is making “rapid progress” in terms of manufacturing, with a capacity to produce up to 3 billion doses of the vaccine next year.

The U.S. and India have agreed to procure 500 million doses of the Oxford-AstraZeneca vaccine, according to data compiled by researchers at Duke University’s Global Health Innovation Centre.

The EU has reached a deal to buy 400 million, and the COVAX facility, a global initiative aimed at ensuring equitable access to Covid-19 treatments and vaccines, has ordered 300 million.

The U.K., Japan, Indonesia, Brazil, and Latin America excluding Brazil have each confirmed orders of at least 100 million doses.


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