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Retail investors might want to be careful trying to repeat the 2021 experience of chasing GameStop GME stock by plowing into Bed Bath & Beyond BBBY in 2022.
As we wrote on Monday, Ryan Cohen’s activist move on Bed Bath & Beyond fomented excitement that the investor turned GameStop savior turned meme stock messiah was going to start another meme stock squeeze campaign on a stock already favored by the meme stock crowd.
But there are a few issues with that thesis, the first being that March 2022 is a very different reality from late 2020, and also that comparing Cohen’s activist gameplan for Bed Bath & Beyond to the one he had for GameStop is like comparing Ryan Cohen holding an apple to Ryan Cohen holding a banana…but a banana that he wants to peel, slice up and sell to private equity.
Firstly, let’s address the macro environment of March 2022 compared to October 2020, when Cohen’s GameStop investment sparked a movement.
Back then, the stock market was soaring out of its funk induced by the pandemic, giving a 50% bump to the Dow Jones Industrial Average
DJIA,
in a matter of weeks, with a wildly accommodative Federal Reserve keeping interest rates low as Americans stayed inside and saved without anything to do but watch that stock market and wonder “why not me?”
Meanwhile, any commodity pricing issues in 2020 were being blamed on the deadly virus raging around the globe, and inflation was still under 2%.
On that fertile ground, Cohen’s move to take GameStop’s existing business and slash costs by closing brick and mortar businesses, that no one could go to anyway during pandemic lockdowns, while simultaneously pushing the videogame retailer into e-commerce, looked like “Value Investing 101” for folks who had spent the past few months tracking the market on their Robinhood
HOOD,
accounts and were looking at GameStop trading under $10 a share.
It also helped that Cohen was able to create a villain out of short-selling hedge funders like Melvin Capital’s Gabriel Plotkin, who had pushed their bets out so far that the short interest on GameStop exceeded the actual free float of GameStop shares.
Cohen seized on that narrative and retail investor animus towards the “bad guys” to seize control of GameStop’s board which capitulated rather easily to Cohen’s campaign, allowing him to join the board in January 2021, helping kick off the wild short squeeze, and even voted him chairman in June.
Cohen then used a nearly 2,000% rise in GameStop stock to pay down debt, reshape the C-suite, and create e-commerce infrastructure.
In effect, Cohen used a wildly bullish market and an unprecedented rate of market participation to make himself the face of a publicly-traded company in a few short months.
Now, let’s look at what’s happening with Cohen and Bed Bath & Beyond in March 2022.
The macro outlook is…different.
Interest rates will almost certainly rise in the coming weeks, major indexes have entered correction territory, prompting fears of a wider bear market, and the Russian invasion of Ukraine has the world on edge with horrific loss of Ukrainian life and the tacit threat of nuclear war.
And then there’s inflation. As you might have heard, inflation as of Thursday morning was at 7.9%, a 40-year high, and a number that does not yet include the full effect of sanctions on Putin’s Russia.
Sure, there are still roving packs of diehard retail investors packed into meme stock trades, but their numbers are vastly reduced from late 2020, and the ones that remain are having to reckon with a much scarier reality on nearly every front and an inflationary environment that makes them choose between YOLOing on buying more of a meme stock or filling their gas tank.
Also, short interest on BBBY is at a relatively paltry 33%, according to Ortex, providing another signal that newly-scrutinized short sellers are fleeing most of this market.
It’s in this new reality that Cohen is moving on Bed Bath & Beyond.
But in fairness to Cohen, his plan for Bed Bath & Beyond appears to reflect the changed circumstances.
In some ways, Cohen’s move on BBBY is much more aggressive than his move on GME. He is asking for the company to potentialy chop itself up by selling its Buy Buy Baby subsidiary and exploring going private to solve what he sees as endemic issues with the current business model, attacking what he says is excessive executive compensation and “high-priced management consultants.”
He’s also made it clear that he won’t be joining BBBY’s board or spending the kind of time he spends on GameStop –something that should be a huge piece of data for new BBBY Apes– but he is leveraging his popular Twitter persona in a much more direct way this time around.
Here’s Cohen’s spiciest tweet about GameStop while he was taking over:
Now here’s what he was tweeting about Bed Bath & Beyond just two days after he sent his letter.
Cohen is pushing here, and he’s not being subtle, because he’s got a different opponent on Bed Bath & Beyond than he did at GameStop.
Sources close to Cohen told MemeMoney that Cohen’s real issue with Bed Bath & Beyond is that he thinks the hedge fund activists who came before him and installed current CEO Mark Tritton lacked the cojones to push through big changes and are now just accepting defeat.
Which makes it curious to watch retail investors on Reddit look for a Gabe Plotkin 2.0 to use as their target on a possible BBBY squeeze.
According to a viral post that has been circulated across many subreddits, including the popular GameStop board r/Superstonk, many retail investors are buying into a theory that Jonathan Duskin of Macellum Capital Management is Cohen’s big villain on BBBY.
In the post by user jango-bets, Duskin is ID’ed as the possible “high-priced management consultant” in Cohen’s letter, citing his resume and deal making history as evidence.
“BBBY was infiltrated by former Lehman and SAC’s Jonathan Duskin,” reads the post. “He has made a career of infiltrating and bankrupting Brick and Mortar retailers.”
It goes on to detail Duskin’s employment at both defunct Lehman Brothers and SAC Capital run by Steve Cohen, and the role Duskin might have played as an investor in the bankruptcies of retailers like Goody’s, KB Toys, and Christopher & Banks.
On Superstonk alone, the post has received more than 14,000 upvotes and more than 500 comments.
But there are two large holes in that theory.
First, Duskin is not a consultant, he’s an activist investor like Cohen, and does not hold any board seat or official role at Bed Bath & Beyond.
Secondly, his public stance on BBBY’s future does not make him a natural enemy of Cohen’s activism. In fact, they sound like natural allies.
“I think he’s talking about exploring strategic alternatives that might include something with [Buy Buy Baby],” Duskin told Yahoo Finance during a March 8 interview referring to Cohen. “I think we’ve articulated that there’s a lot of value in [Baby] for a long time. If you look back to some of our early letters we wrote years ago, we thought [Baby] was worth more than the whole business, and we believe that even more firmly now.”
Duskin declined to comment on the situation to MemeMoney, but sources close to the investor say that, while the two are not acquainted, he is broadly open to Cohen’s ideas for Bed Bath & Beyond.
And the company’s board might have to be as well.
According to a report from Reuters, Cohen has hired proxy solicitor Harkins Kovler to represent him on his move to reshape BBBY’s board, sending a clear signal that he does not see this going as easily as his move on GameStop.
If Cohen wanted to do the same thing he did with GameStop and attack a guy like Duskin in the process, he wouldn’t be hiring a proxy firm to do it, because he wouldn’t need to if he the plan was the same, or if a potential ally like Duskin was on the board.
By midday Thursday it appeared that either retail investors were getting cautious or there was actual new short action on BBBY with the stock down more than 6% on the day after pumping up over 25% since Cohen’s letter went public.
Of the 17 analysts covering BBBY, FactSet data shows that only 2 currently have a Buy rating on the stock. One of those, B.Riley’s Susan Anderson, wrote in a note on Monday that “most of the price movement can be attributed to the
“meme stock” frenzy we saw in early 2021.
As for GameStop, shares were off more than 5% continuing a trend that has the OG meme stock down nearly 35% in 2022, presenting even more evidence that not even GameStop is GameStop anymore.
