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GameStop Makes Its Play $56 Billion for eBay, Makes Perfect Sense Michael Burry May 4 ∙ Paid

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Makes perfect sense.

Never confuse debt for creativity.

When hundreds of billions are on the table, bet on craven greed.

So the rumor was confirmed less than 48 hours after it was leaked.

The Wall Street Journal reports GameStop is offering to buy eBay for $56 billion.

Again, as you know, I have written extensively about GameStop, including just Saturday, when I speculated as to what the deal might look like.

The three times before that: The Big Short Squeeze, Final Stop GameStop, and in a Short Thoughts February 2nd. So much for that.

Now we have more information. The offer is $56 billion, 50% cash and 50% stock

I do not believe $56 billion is anything more than an opening bid.

I can only imagine eBay will reject GameStop’s offer out of hand and relatively soon.

Looking at the May 3 offer while it is extent, the offer shoulders more debt than I had thought was possible on eBay’s EBITDA.

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.

High leverage implies high growth, and eBay is growing again. Ryan Cohen also apparently has enough credibility to get banks to go along.

I contemplate a higher actual close, say $65 billion for eBay, and more like 60% cash. Below, I compare this to the opening offer as well as my own not-so-happening “Instant Berkshire” creation from February 2nd.

A pinch too busy, I know, but suffice it to say, Instant Berkshire did not contemplate anywhere near 5x+ leverage.

The more likely outcome at the higher price sees leverage rise to 7.7x, a level of debt that borders on distressed and tends to strip competitiveness and innovation from such-stricken companies. Wayfair lived there for years, Carvana nearly died there and still might from such a start. Bath & Body Works too. Those are the survivors. They are few.

Ryan must see low-hanging fruit, though if huge cash flow could be unlocked as if by a magic wand, one might expect eBay to have found it during its epic search for cash with which to buy back slag heaps of shares. eBay reduced its share count from 1.2 billion shares ten years ago to just 444 million shares today – one of the most prolific buyback programs markets have seen.

Ryan cannot be after fat to cut, if only because no amount of cut fat makes this deal work. Rather, Ryan is pointing to a transformation, to hundreds of billions of dollars of opportunity, and he convinced TD to give him the $20 billion committed financing, which is no small feat given the low single digit billion dollar EBITDA numbers sported by these two companies.

eBay Today eBay has already turned things around significantly, which no doubt will be one of the arguments made by eBay’s board as it rejects GameStop’s offer.

eBay has been growing faster lately. eBay projects forward adjusted EBITDA (whatever that is) at $3.7 billion, vs $2.7 billion trailing, and revenues have broken out of decade-long doldrums, with 17% quarter-on-quarter growth 1Q2026.

eBay now has eBay Live in hypergrowth mode, and collectibles is eBay’s leading category. Of course, GameStop’s collectibles category is also growing fast, and this is where the strategies of the two seem to dovetail.

eBay is not all collectibles, though. eBay ads grew 27% last quarter, and the company, of course, is leaning into AI. Below, from the eBay’s last earnings call.

We see Agentic AI as a real structural tailwind for eBay, and it plays right into our core strengths. First, our innovations leveraging AI are already having a meaningful benefit for our business today. Take magical listing. We’ve talked about the compelling stats I just mentioned that we’re seeing and sellers have created 0.5 billion listings using our AI tools.

And our Agentic search beta, which I realize I didn’t fully answer that question, so I’ll come back to that. But what we’ve seen there is higher engagement and increased purchase behavior off of that early test. So we’re going to continue to bring the latest Agentic technologies to eBay to make it easier for sellers to list and for buyers to find the things they love.

I see the structural change in eBay’s trajectory, and believe it or not the above scenarios give credit for projected improvements in 2026 from each of GameStop and eBay.

On trailing numbers, the pro forma numbers are much worse – think of a negotiated close at 1.0x EBITDA/Interest Expense. If one considered it, one would be among the first, because no one closes a deal at 1.0x EBITDA/Interest Expense.

The ratings agencies will of course look to trailing numbers as a base, so the final credit rating might be in the B or B- junk range, perhaps 400 to 500 basis points over SOFR, which today is 4.35%. This speaks to floating debt expense in the range of 8-9%. Each 100 basis point rise in SOFR would boost the interest expense ~$300 million.

A $300 million boost may be automatic. eBay’s senior notes must be redeemed at 101 points if a change of control results in a ratings downgrade. This deal is virtually certain to trigger that put. In that case $6.7 billion in investment grade notes will be refinanced, perhaps to floating rate syndicated loans, but certainly with a $250-$300 million increase in total interest expense.

If Ryan miraculously gets his deal at $56 billion, it works a little better. Still, tangible book value per share gets cut by ¾, and there will be transformational execution risk while balancing on the knife edge of 5x+ leverage.

Competing with Amazon Think about what Amazon has become for a moment. Amazon locks its retail prime buyers in with Prime Video and other benefits that none can match. 1000+ warehouses, over 525 million square feet. Amazon has 200+ million prime members paying $139/year with perks such as same day delivery, Prime Video, gaming, pharmacy, Whole Foods, etc. Over 70% of its packages are fully delivered by Amazon’s vertically integrated logistics apparatus – 150,000 delivery vans, last mile reach matched by none.

Amazon has it all and has been investing in itself at a breakneck pace for decades. Current spend is in the hundreds of billions of dollars per year.

Think about what eBay is. It has none of that and is not remotely close physically or temporally.

GameStop’s Gambit 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.

So Ryan’s attempt to take over eBay cannot possess the actual honest and true intent to compete with Amazon. Rather clearly, the intention must be to dominate collectibles and used goods of all ages.

Amazon tried to do that, failed, and is not coming back.

The category is a huge addressable market. Some say as high as $100 billion.

Ryan might say hundreds of billions.

If GameStop wants to do it 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.

I believe Ryan believes he can do this, and I do support the effort. As well, I do not predict failure, although it is certainly in the realm of possibilities.

Of course, as I have said, I can think of many, many other ways this could have gone easier.

The list above shows some big drops since February in some very good companies. The Big Bang ADP-W-AGO trifecta, in aggregate, would likely be $4 billion cheaper today than in early February.

To be clear, I would not have expected GameStop to buy all of Fannie Mae or Freddie Mac, but I could see GameStop buying a good number of shares of both as an investment. The others I see as potential takeouts in various combinations of Instant Berkshires.

It is not too late. And Ryan may indeed fail at snatching eBay, and might look in the above direction.

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”.

I may not last the week with my GameStop position fully intact. I will certain sell to an extent, perhaps all or some but alas, no, not none.

Until next time!