Motley Fool Hidden Gems Investing - Game over for GameStop’s CEO

Episode Date: June 8, 2023

GameStop’s CEO is out and Spotify is shaking up its podcast strategy. (00:20) Deidre Woollard and Bill Barker discuss: - Why the market isn’t quite certain about Ryan Cohen’s new role at GameStop. - If GameStop can move beyond meme status and find new growth. - Spotify’s layoff’s and what it signals about its strategic shift. (11:40) Asit Sharma talks to former Snowflake CEO Bob Muglia on his new book The Datapreneurs, what Microsoft got wrong about the internet, and where AI could take us next. Companies discussed: MSFT, GME, SPOT, SNOW Host: Deidre Woollard Guests: Bill Barker, Asit Sharma, Bob Muglia Producer: Ricky Mulvey Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

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Because we have your number. CEOs are out at two businesses facing a pivot point. Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Deidre Willard. I'm joined in studio by Motley Fool analyst, Bill Barker. How are you today, Bill? Good.

Thanks for asking. How are you? I'm doing great. I want to start with GameStop. It feels like a little bit of fate because yesterday on the podcast we had Ricky Mulvey. He talked to Melissa Lee about the making of The Meme King, which is this new documentary all about Ryan Cohen. And now we've got The Meme King. He's front and center in a new story.

He's going to move up to the executive chairman of GameStop. Matt Furlong is out as CEO. Bill, the market, they did not like this news. And, you know, we're thinking about this. Is Cohen, has he lost his shine? was he just like a one-hit wonder with Chewy? Well, there's a lot to choose from as to trying to figure out the 20% drop. Of course, the stock was up 5% yesterday in anticipation of the earnings report. Earnings report showed that revenues, I think, were down about 10% year

over year. So, it'd be fair to knock 10% off the stock price for that. The 5% that was up the day before, I think the biggest problem out of everything was just the total lack of explanation of the CEO departure. It's just, he's gone. He's gone. Nothing to see here. We're not answering any questions about it. So, I think that the market is, in that case, you would expect a pretty big hit, and 20% maybe even less than you might expect. So, maybe there There is a tiny bit of hope that Cohen adds something to this equation, but there hasn't been anything to like in this business for a while. Yeah, that's true. And Cohen was, you know, supposed to be the shining star to kind of fix it.

He brought in Furlong, who was formerly at Amazon, and he brought in a couple of other people, too. Jenna Owens, she was the chief customer officer, left after seven months, brought in the CFO, Mike Rucupro. He left. He was terminated last year. This was the fifth CEO in five years. So this is a lot of turmoil for a company that's already in a lot of chaos. Now, they're putting in Mark Robinson, who's a GameStop veteran, been there eight years. He's the new principal executive officer, which is not the CEO.

His title, I believe, is general manager. Is this going to be more calming or is Cohen a chaos force? Well, there's a lot of crosswinds to deal with regarding the state of the business. Hasn't made any money, hasn't been profitable since 2018. You've got the situation with mall traffic in long-term decline. It's back, certainly, quite a bit since the lows of the pandemic, of course. You can throw out a recession out there, games moving to the cloud. So, it's not an enviable job to try to look at this morass and see a good way to fix it. I don't envy anybody who would take on the task unless

are getting paid a lot of money, which they're going to have to be to take this on. Five CEOs in the last five years. There's no reason to see this as a great opportunity, but it might be a great paycheck. So, I think that is what the leadership is going to have to be looking for, is a lot of pay. There's a lot of money on the balance sheet. GameStop isn't going away anytime soon. They're not losing so much money that their big cash hoard that they collected won't keep them afloat. But, you know, I don't know how calm things can be for a business that, you know, hasn't had a good year in the last five or six. Yeah. Yeah, that's true. Let's talk a little bit about that. They've closed stores. They got into some crypto. They were

selling some NFTs. Doesn't seem to have been a great move for them. We didn't get an earnings call with the results. So we don't really know where they're thinking of going, but sales are still dropping. Even after all of the meme stock hype about this, this seems like it's really not valued maybe the way that we would think it could be. So add in all that confusion on strategy. Is there something worth looking at here? Well, I'm frankly not smart enough to tell them how to grow their business from here. It is a mall-based operation with some tangential things like NFTs. I don't know what that's worth. Let's start at zero and say it's zero, maybe negative. Maybe it's worth more than that. Some people out there will believe it's got

something there. I'm not one of them. But I don't see what the path that they are on leads to other than slightly declining sales year over year, which is what they've been doing for several years now. Somebody with vision who knows this industry and is smarter than me can come up with a better answer than that. But they haven't found that person yet, and they've run through quite a few in the pursuit of it. Yeah, they have. And gaming in general has been down a bit. You've got this sort of trend of gaming being really big during the pandemic and then, you know, not so much once we could go back outside. Is gaming, is it so tied to gaming that it can't really, you know, it doesn't really have an opportunity to grow beyond that? Is there anything else that, you know, that it could pursue? I don't know that the brand extends to anything beyond gaming. It's right there in the title. Well, there is that. I think they're limited there.

Again, somebody with real vision might be able to come up with a way out of this box, but they are on version 6.0, I guess, in pursuit of that. In between now and then, the best thing that they've done in the last four or five years is to do a couple of secondaries when the stock was crazy high. And if you could push five million shares out the door at $200 a share and put a billion dollars on your balance sheet, which they did, hey, credit to management for doing that. They took advantage of the absurdity of the stock price at the right time. They didn't dilute the stock that much.

If they had been able to double that, they would have been doing even better. But this is what is the strength of the company right now, is the cash that they pocketed from their high stock price. So, there's always the chance that the pattern repeats itself and some sort of lunacy occurs, driving the stock price up 10X from where it is right now. That's what they ran a secondary off of only two years ago. I don't think, I wouldn't bet on that. It's not investing, but there might be a gamble here that somebody sees that could pay off. But that's the only thing they can do that would have worked in the recent past, is to do a secondary that takes advantage of a stock price that should never have existed in the first place.

Yeah, it does not sound like a lot of opportunity there, but the cash does keep them around for a while. Well, let's switch and talk a little bit about Spotify. They laid off around 200 people this week. They're consolidating their podcast division. This is interesting because podcasts were supposed to be the big differentiator here. They spent a lot of money on building out this podcast network. I'm thinking about this in terms of businesses trying things that don't work out. You know, we just talked about GameStop.

They tried with NFTs and crypto. That didn't work out. When you look at Spotify, what do you think about where it could go? does this mean podcasts aren't viable? Does this mean there's something new that they could try? Well, I hope podcasts are viable. Well, we are on a podcast. We're on one at the moment. But the calculation that was made at the peak of the sort of podcast bubble when very, very, very large amounts of money, I can't even remember how much,

were thrown at Joe Rogan and Michelle Obama's got a podcast there too, and The Ringer. the money that SmartList guys got all at the peak, isn't going to be repeated. So, everybody overspent at a moment in time, and overhired, and thought that the growth in the industry, and this is not restricted to podcasts or to Spotify, you look at Google, you look at everybody who's announced layoffs in the tech world, which is just about all the big players. Everybody was hiring too many people at that moment in time. Spotify has joined others in rectifying some of that by slimming down a little bit. I think that they also have Joe Rogan's contract coming up at the end of this year. When they talk

with him and he says, I would like all the money in the world again, maybe twice as much, say, look, we're laying off people. It doesn't really make sense for us to give you more than all the money in the world, so let's talk realistic numbers. I think that the podcast division is going to be something that is useful for Spotify in the long run, but they have to get the actual ad revenues matching up with the amount that they're paying the talent. Yeah, ad revenue is becoming the story right now. LA Times, they just laid off about 13% of the newsroom. The weak advertising market is really driving a lot of what's happening in content right now.

Is this a cyclical thing that is going to get better and companies are just going to have to kind of wait this out? Well, LA Times is more of a long-term downtrend industry in terms of print journalism. And having made improvements in the online experience, still, it's a long-term downtrend. And Spotify was more a part of a bubble, I think. So, it's very tough in journalism right now. I can tell you, my daughter's been looking for a job there for a little while now since she graduated, and it is not at all easy to find anything. So, if anybody knows of something, let me know, because I'll pass it on.

But the fact is, there was a nice improvement for the print journalism business during the Trump presidency. There was a lot of breaking news all the time, and that kept more people employed and chasing down the 12 stories a day that there seemed to be. And I think that that has calmed down in recent years, and people are not as fixed either to their newspapers or to the new services on TV either. Will we see a Cambrian explosion of open-source AI? Asit Sharma speaks to author and former Snowflake CEO Bob Muglia on Microsoft's battle with the Department of Justice

and the role of data in building our future. I think some of our younger members probably haven't seen this era when we had this transition from the PC world into something a little bit larger. I remember the promise of the information superhighway for years and years and years. You have a concept that you talk about in the book that Bill Gates presented in his sort of evolution from CEO of a very technically centered company to industry visionary. Information at your fingertips or I-A-Y-F. I wondered if you could share with us, speaking of the good, bad, and the ugly, maybe first some successes that Microsoft realized in going after this vision to put information at people's

fingertips. And then we'll talk about maybe where Microsoft fell short in that. But first, the good. Well, you got to look around. I mean, remember, that was 1990 when Bill talked about that. And PCs barely worked at all. There were no, you know, nobody held, you know, very few people were carrying wireless phones. There were an exotic thing still at that point in time. And most people were still, you know, printing things and everything was working on pencil and paper back then. And I think the thing that Microsoft did is it digitized the world. And it did so in a democratic way. It did it in a way that covered everybody across the world at a low price that allowed people to have access to technology. And that's certainly something that

I worked on in the server side with things like small business server. But across the Microsoft product line, whether it was Windows or whether it was Office, all of these things helped to bring information to people. Email. I mean, email was a whole new concept, and Microsoft really helped to popularize that during the mid-1990s. We have to recognize where we've come from. But I do think the thing that's really changed for everyone is ultimately what happened with the internet and with HTML and the browser, and that has ultimately been the real delivery of information at your fingertips. We still use productivity tools to create that information, certainly documents and things like that, which are a huge part of the web. But the web itself is really the

thing that revolutionized and I think allowed Bill's vision of information at your fingertips to come to fruition. We went down some dead-end roads. I mean, one of the things I write about in the book is the quest for integrated storage at Microsoft, this idea that there should be some central repository inside the set of PCs in your organization that can find anything for you. And that really got shaped not by the technologies that Microsoft was building, but by the Internet technologies. I think we've largely fulfilled Bill's vision of information at your fingertips, but we've technically done it in a way that wasn't anticipated. And certainly, I think that's great because a lot of other companies were involved, and it really is an industry-wide thing. So the vision was fulfilled, although the specifics were perhaps a little bit off.

Sure. And I think we see that extension even today. Microsoft Office is still so relevant. Satya Nadella is putting Gen AI tools into Office. So I think that endures. What about where maybe Microsoft fell short? In the book, you talk about perhaps a lost opportunity that's not a direct competitor, but another tech giant seized in terms of search. Well, I think the biggest issue is that, and this was around the 2000 time period, when Google was just forming, it was pre-public, before Google was public, Microsoft had clearly embraced the internet. We went through the whole internet tidal wave period in 1996 and went through the browser wars, which ultimately led us into the DOJ fiasco that we got into. The one thing I would say is that you can't underestimate the impact of the DOJ trial on Microsoft in the first half of the 2000s, say 2000 to 2005. It dominated executive conversations.

And it really, you know, Bill wound up leaving the company and, you know, he was playing a role as chief software architect for a while, but ultimately left. So there's a lot of changes that came from the company through that experience that we had with the DOJ. But I'd say even with – put all that aside, the number one thing that – mistake that Microsoft made is that senior management held Windows at the center far, far longer than they should have. Once the internet happened, services were going to rule and Windows was just a client into the internet. Now, in that time frame, it was before the smartphone, certainly, before the iPhone, and the Mac was out, and it was weak at first, and then, of course, it got stronger over time. But Microsoft had a Windows-centric view of the world, and it wound up driving executive decision-making to miss some things that we could have perhaps pivoted and been more successful with. But I still look and I go, you know, there are two trillion other companies. What are you going to say?

I mean, it's a gigantic company. It seems to have done all right somewhere down the line. Before I let you go, I want to ask about the future because this book is part talking about the rapid change that's enveloping our world. You have an arc you've constructed. It's a visual graph at the both beginning and end of this book. It's called The Arc of Data Innovation, and it starts with digital computing in 1950. we're here at Foundational Models of Generative AI. This is now 2023. And you go all the way up till I think the 2040s to 2050s to technological singularity, which is both inspiring and slightly

scary thought. It is scary. Yeah. So go ahead and explain to our members this arc of data innovation. Well, the realization, this idea that there's an arc of data innovation has always been part of the book that I was writing. But what I did not realize when I started writing the book was how fast things are moving right now with generative AI and foundation models. And so I had to move up my timelines in the two-year period that I spent writing the book. My timelines for how fast all of this was going to happen moved up. I really didn't think when I started writing the book that I would see in my lifetime artificial general intelligence. And now it's become pretty apparent that that's going to happen. And what we've seen throughout the

history of data and technology is a continued increase in the speed at which innovation is happening. I mean, you go back to the beginning of my career in the 1980s and think about how fast things happened back then, and you compare it to now, and it's mind-boggling. It's mind-boggling how different things are. We had to do everything at work. There was pencil and paper. You'd have meetings and everything. I mean, the speed at which things happen today is so much faster than it was before. And it's clear that this generative AI is going to continue that acceleration. And we are going to see machines that are as smart as we are and ultimately smarter than we are. And it's important that as we start to see progress continuing to increase at a faster

and faster rate, that's really what a technological singularity is. It's progressively increasing speed of progress. And the question is, how do people actually, are people actually going to relate to that? How are we going to put in place contracts, social contracts, to work with these new machines, these entities that we're creating that, in a sense, are our peers, maybe have capabilities significantly beyond us? It's a whole different world, and it's a world where there's a lot of questions that need to be answered. And fortunately, I think, one of the things that's been very, very fortunate. And even since I actually finished the book in February, seeing the response of the industry and the concerns that the industry has associated with

the potential downsides of this are good to see. I am an optimist. I am an optimist. I believe that this stuff is going to, I mean, I'm confident in the next five years, we're going to see innovations that are incredible and are going to increase our productivity and help us to lead better lives. I think in the 2030s, we're going to enter a world of robotics where almost an Asmovean world of robotics, where we have robots that can help us in a variety of ways and help to serve us and make our lives better. And I think we'll see people's lives improve in a variety of different ways. Fortunately, I think this AI is going to be very cost effective. I don't think it's going to be controlled by just a few big companies, although clearly they'll play a major role. I'm thrilled to see the Cambrian explosion of interesting things happening in the open source world around generative AI and think there's tremendous opportunity for the different open source solutions.

And I think that's good for the world, that there's a lot of flowers that are blooming. So I'm an optimist. There's a lot of reason for concern. I mean, scientists that know the most, I'm not going to argue with these people, talk about the potential for existential threats. I'm sure that's true, but I'm also confident. I've always been a guy that specifies what needs to be done, and I'm confident we can continue to control these things and drive forward in a great way for both humanity and the entities we create. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear.

I'm Deidre Willard thank you for listening we'll see you tomorrow