Blasts From the Past

Two names from the past popped up my radar screen this week, making claims for the future: GameStop and Blackberry. It’s as William Faulkner once wrote (Requiem for a Nun): “The past is never dead. It’s net even past.”

Talk about blasts from the past. Credit: Microsoft Designer

Last time I thought of GameStop, they were the beneficiary of a meme stock frenzy, back in 2021, wherein a bunch of day traders used Reddit to drive the stock price up to insane levels (up 1500%!) in a effort to punish professional short sellers. It survived that, closed hundreds of stores -- and quietly accumulated a 5% stake in eBay. Then a couple of days ago CEO Ryan Cohen announced GameStop was making an unsolicited – and potentially hostile – bid to acquire eBay.

Now, keep in mind, GameStop has a market cap of about $11b, while eBay is valued at $46b. eBay may not be quite the cultural force it once was, but at least it never had to rely on a meme stock rally to pump its stock. So this is more like The Mouse that Roared than David versus Goliath.

GameStop is offering $125 per share, a $56b bid that was about a 20% premium over eBay’s stock pre-bid. The bid is financed 50% by cash and 50% by GameStop stock. GameStop claims to have a $20b commitment from TD Securities to back the bid.

“EBay should be worth—and will be worth—a lot more money,” Mr. Cohen said in an interview with Lauren Thomas of The Wall Street Journal. “I’m thinking about turning eBay into something worth hundreds of billions of dollars.” He sees, for example, using GameStop’s remaining thousands of physical locations as places to collect and authenticate items from eBay sellers. The bid letter outlines: “GameStop staff already inspect and grade hardware and trading cards every day. Sellers walk in, items are verified on the spot, and listings carry a trust badge,”

“There is nobody who is more qualified, based on my experience, to run the eBay business,” he asserted to Ms. Thomas.

EBay has acknowledged the offer, promising it “will carefully review and consider the unsolicited proposal to determine the course of action that it believes is in the best interests of the company and all eBay shareholders,” focusing on value to its shareholders.

No one other than Mr. Cohen seems all that excited about the bid, with GameStop’s shares dropping and eBay’s rising since the bid, making it more costly. “Without more details on proposed financing, we think the market would be skeptical of a potential deal’s feasibility,” analysts at Morgan Stanley wrote in a research note late last week. “The business is firing on all cylinders,” analysts at Bernstein wrote. “Why disrupt things? The turnaround is working.”

Still, Mr. Cohen is undeterred. “We are just starting,” Cohen said on CNBC’s “Squawk Box.” “For obvious reasons, eBay is a public company, there’s all kinds of perverse financial incentives from the board to the management team. So there’s only one way to approach something like this.” He believes the combination “could be a legit competitor to Amazon.”

But, at least, there’s no denying: people are talking about GameStop.

That’s probably more than one can say about Blackberry. It’s been even longer since I’ve thought about it. Those of us of a certain age remember Blackberry well; it was king of mobile business until the advent of the iPhone, with its distinctive physical keyboard. Blackberry – formerly known as Research in Motion – no longer makes phones, but its strength was never the hardware, it was the software that powered those devices. And a software company it owns – QNX – is still ubiquitous.

Ben Cohen profiled QNX in The Wall Street Journal this week. Mr. Cohen writes:

The company’s most lucrative product is not hardware but the hidden software in 275 million cars on the road today. In fact, BlackBerry’s essential technology can be found in all sorts of unexpected places, and you wouldn’t find it even if you went looking for it.

He further explains: “QNX is the operating system that enables all kinds of driver assistance: collision warnings, blind-spot notifications, adaptive cruise control, pedestrian detection and steering you back into a lane when you’re drifting into trouble.”  John Wall, QNX’s president, told Mr. Cohen: “We’re the foundation. Everything pretty on top wouldn’t work without a strong foundation.” 

Source: WSJ

QNX claims it is “the software foundation of Physical AI,” serving the automotive, defense, heavy machinery, medical device, and robotics industries, among others. In medical devices, for example, it helps power surgical robots, diagnostic equipment, patient monitoring, and drug delivery systems, claiming that 9 out of 10 medical device manufacturers use its solutions, in over 50 medical device types.

QNX accounts for half of Blackberry’s revenue and has helped Blackberry get four consecutive profitable quarters since the first time since the iPhone hit. I don’t know what WSJ’s policies are about investing in companies reporters write about, but Blackberry’s stock surged after his article hit. It’s not all about his fine reporting though; investment guru Timothy Sykes says: “The cash flow picture is what serious traders should focus on. BB generated roughly $46.1M of operating cash in the latest quarter and $44.4M of free cash flow, while keeping the balance sheet relatively clean with a current ratio near 2.1 and modest leverage.”

And to help keep the ball rolling, QNX recently partnered with NIVDIA to create “a unified platform for safety‑critical edge AI across robotics, medical, and industrial systems.” Mr. Wall said: "As robotics, medical, and industrial systems become more autonomous and software defined, safety and determinism cannot be afterthoughts. Integrating QNX OS for Safety 8.0 with NVIDIA IGX Thor and NVIDIA Halos Safety Stack brings together a trusted real‑time safety foundation and a powerful functional safety platform for edge AI.”

So Blackberry is doing well, thank you very much, even though the main driver for its success is even less known. As Mr. Wall admitted to Mr. Cohen, “If I tell them I work at QNX, they don’t know what that means.”

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I’ve never been in a GameStop, I rarely even browse on eBay, I was always only a begrudging Blackberry user (I long for Palm Pilots), and I don’t even know if my car uses QNX. But for some reason, I’m glad that GameStop and Blackberry are still alive and kicking. Reinvention is said to be good for the soul, and, sometimes, it is essential for a company. But if you have been waiting for Ask Jeeves to finally supplant Google in search, you are going to be disappointed. Not everything has a second life.