Dramatic Losses at Overstock

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"Our business is dramatically improving."

Bold words from a man who runs an online retailer that burned $58 million in cash on revenues of $158 million. But then we're used to bold words from Patrick Byrne, CEO of Overstock.com (Nasdaq: OSTK).

Part of Overstock's "dramatic improvement" was an 11% year-over-year drop in revenues. Probably not the improvement that believers of the Overstock growth story were looking forward to, but there is a bright side to the figures.

The increase in gross margins and profits -- 270 basis points and 7%, respectively -- bodes well for a company that aspires to stop burning cash quite so quickly. Net cash burned by operations came to $58 million, which, to be fair, is an improvement on the $73 million torched in the prior-year period. But how dramatic is it? And can it continue?

As I've pointed out many times, Overstock is waging a losing battle against the likes of Amazon.com (Nasdaq: AMZN) and anyone else who's got the time to sell online. I also think Amazon is a horrible business for investors. (Great for consumers, though.) Its blowout earnings today are weak where they count: Cash flow is flat. So, if Amazon can't get 'er done despite a 32% increase in revenues, why would anyone assume Overstock could with a top line that's moving in reverse?

In the end, this is a mostly moatless business, which means the competition must come on price, or brand recognition, or service. Overstock's drop in revenues looks like a pretty good indication that it's not able to compete on that playing field. Where's Overstock's advantage? That's the question investors need to ask, and then soon after, they need to ask, "How much do I pay for a money-burning business with no moat?"

For more on online commerce, check out:

• Overstock: Still Stinky
• Before the Call: eBay up for Bid
• Amazon's Endless Possibilities

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At the time of publication, Seth Jayson had no positions in any company mentioned here. See his latest blog commentary here. View his stock holdings and Fool profile here. Fool rules are here.